State pension triple lock saved as Conservatives reach a deal with DUP
Theresa May has had to concede a number of her manifesto pledges in order to reach an agreement with Northern Ireland’s DUP to secure a majority government.
As part of the ‘confidence and supply agreement’ reached between the two parties, the state pension triple lock has been saved and the government will also maintain universal winter fuel payments.
The state pension triple lock
Since 2010, the state pension has risen annually by whichever is highest out of inflation, earnings growth or 2.5%. The triple lock guarantee applies to the old state pension (currently £122.30 a week) and the new flat rate state pension (currently £159.55 a week). This means pay outs are guaranteed to grow by at least 2.5% until 2020.
The triple lock safeguard has received considerable criticism, with critics saying it places a strain on working people whose taxes support the policy at a time when the population is ageing. It has been labelled ‘unsustainable’ and ‘unfair’ as the average pensioner household income now exceeds that of working age households. Younger generations are facing slowing wage growth and have had to bear the brunt of public spending cuts, which have not been felt by wealthy retirees.
As part of the Tory manifesto, it planned to introduce a double lock where pensions would rise in line with the earnings that pay for them, or in line with inflation – whichever is highest. However, they were alone in campaigning for its abolition; the DUP manifesto included commitments to the state pension triple lock.
‘The state pension system will come crashing down’
AJ Bell senior analyst, Tom Selby, said the policy has simply become a symbol for doing right by older people, and as a result there has been little serious debate over its purpose or sustainability.
“The reality is the triple lock is a random mechanism for ratcheting up the value of the state pension during periods of low inflation and average wages, without any clear destination or justification. Indeed, moving to a double-lock of earnings or inflation is unlikely to cost a lot less in the short-term – and could cost nothing at all if either remains above 2.5% between now and 2022.
“The state pension system will come crashing down unless spending is reigned in, with estimates suggesting it will cost £30bn more in today’s terms in 50 years’ time unless reforms are introduced. This will involve either reducing the amount people receive, or increasing the state pension age. Neither of these reforms will be popular but if politicians refuse to address this reality they will risk further piling the burden on future generations.”
Tom McPhail, head of policy at Hargreaves Lansdown, added that today’s agreement isn’t a nod to retaining the triple lock indefinitely. “There is widespread support for its abolition, however from a political perspective now is clearly not the moment. A possible way through this impasse is to build consensus with the pensions industry and across the political spectrum, through the formation of a Savings Commission to explore the development of a joined-up savings policy for the benefit of all ages across society.”
Winter fuel payments
The Tories and DUP were also at odds over winter fuel payments.
Winter Fuel Payments help older people pay for their energy and it is paid regardless of need, meaning even wealthier pensioners receive the money.
The Tories pledged that if they were elected, they would means-test winter fuel payments, “focusing assistance on the least well-off pensioners, who are most at risk of fuel poverty”.
The DUP was committed to maintaining the payments and made this a condition of its co-operation.