David Willetts is President of the Resolution Foundation, a Conservative peer, and author of ‘The Pinch: How the Baby Boomers Took Their Children’s Future‘.
There is an obvious political logic to Jeremy Hunt’s commitment to extending the pensions triple lock to the next Parliament. You could argue that it is a realistic admission that the Tory vote is now concentrated amongst old people, and Conservatives have to offer them something.
But that doesn’t make it right.
This story really begins with Gordon Brown’s 75p increase in the basic pension, which significantly damaged support for Labour amongst pensioners. David Cameron observed the difficulties Labour got into and came up with the offer of the triple lock: that the state pension would rise by either earnings, or inflation, or 2.5 per cent, whichever is highest.
One argument for it was that after the financial crash interest rates were so low that pensioners with savings on deposit were getting no income from them. Low interest rates redistribute away from older savers towards younger borrowers, so there was a logic to this argument.
But the era of low interest rates has ended. The income which savers get from their deposits has now surged to £38bn – and that is mainly extra income for pensioners. Now the pressures have shifted to younger people with mortgages.
There was a second argument too: that the level of the state pension was too low.
It had fallen relative to the earnings of the working-age population; Margaret Thatcher’s biggest single saving in public spending was to link the basic state pension to prices and not to earnings. (Those were the days when Conservative vote was much more evenly split across the generations.)
The Triple Lock reversed her approach and enabled pensions to rise relative to earnings. But at some point we have to say that job is done, and that moment has surely arrived.
The Coalition created a new single-tier state pension whose value is now 25 per cent of average earnings. That is back to the relationship of the pension to earnings in the late 1970s.
One of the great advantages of today’s pensioners is that so many of them are owner-occupiers with the mortgage paid off so that, after allowing for housing costs, their living standards are doing particularly well.
Indeed the typical pensioner, after allowing for household size as well, actually has a real income higher than the typical working age family; meanwhile poor pensioners (in the bottom ten per cent) are better off than poor working-age families. For instance, in 2021-22, the incomes of poor pensioner households were around £3,000 higher than poor working-age households.
Pensioners used to be disproportionately likely to be poor. Now they aren’t. We should declare victory and move on, to help the families and young people whose incomes are lower.
All this is directly related to the other pension story at the moment – the Ombudsman’s report on the women caught out by the rapid increase in the state pension age.
This is linked to the Triple Lock: the Coalition needed a way to pay for it. The pension age for women was already scheduled to rise to 65 (to match men) but the Coalition decided to speed that up so as to save money to help pay for their expensive commitment.
As a result of that decision in 2011 the female pension age rose to 65 by November 2018 and 66 in October 2020. Those savings partly offset the cost of the Triple Lock. The pension age is now scheduled to rise from 66 to 67 between 2026 and 2028; perhaps the Treasury see that as helping to fund the latest Triple Lock pledge.
There are wider strategic issues here as well. Everyone recognises that the fiscal position is very difficult. But whenever tough decisions are imposed on everyone else, the extraordinary generosity to pensioners will stand out as the vivid exception.
We will be told that Conservatives want other groups to bear the brunt of cuts in public spending whilst protecting Tory voters. It is hard both to be an advocate of a small state and of the Triple Lock.
Many young people want to see granny looked after. They may not begrudge pensioners this boost to their incomes. But equally there are many old people who increasingly worry about the prospects for their children and grand-children. In an ideal world we would have extra resources for everyone, but in reality, there are constraints and trade-offs.
This decision on the Triple Lock is a message about priorities – and it’s not the right one.
The post David Willetts: The Triple Lock has solved the problem it was created to address, and now has to go appeared first on Conservative Home.
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Author: David Willetts
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