Experts have cautioned that the future of retirement remains uncertain. Since April 1977, plans have been set in motion to raise the state pension age to 68 between 2044 and 2046. This change is projected to save the Treasury billions of pounds by reducing the cost of state pensions and increasing income tax revenue from individuals compelled to work longer.
Nevertheless, previous instances of increasing the state pension age have exacerbated social inequality across the nation. When the pension age increased from 65 to 66, around one in seven 65-year-olds fell into income poverty as per estimates from the IFS.
In England’s most deprived 20% of areas, the number of over-65s re-entering the workforce increased by 11 percentage points. This was more than double the increase observed in the wealthiest 20% of areas, which only saw a rise of four percentage points.
Addressing the impact on public spending and social welfare may require a combination of raising the state pension age and reforming the triple lock policy.
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So what would a new state pension policy look like?
Frequently discussed alternatives to the current triple lock system include a “double lock” or a “smoothing average.”
Baroness Ros Altmann, a former pensions minister, explained, “The 2.5% part of the triple lock has become unnecessary, but it significantly contributes to the forecasted cost of state pensions. It lacks economic rationale and was implemented for political reasons.
“While the triple lock serves as a symbolic commitment to pensioners, it seems less logical from a societal standpoint since the introduction of the new state pension,” she added.
Baroness Altmann proposed a more appropriate solution: “A double lock on all aspects of the state pension, providing the higher of earnings or price inflation, might be fairer. Additionally, taxing benefits such as the Winter Fuel Payment could help reduce costs.”
Another option could be a “smoothing” process, whereby the state pension is adjusted by the average of inflation, wage growth, and 2.5%, instead of the highest of the three.
If this revised policy had been implemented since its introduction in 2011, the government could have saved approximately £13.4 billion, according to calculations by pensions specialist Canada Life.
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