DWP State Pension latest as Triple Lock ‘needs to be axed’ | Personal Finance | Finance

The state pension triple lock should be scrapped and replaced with a fairer, earnings-linked system to avoid plunging millions into retirement poverty, a major review warns.

The Institute for Fiscal Studies (IFS), in a report backed by the abrdn Financial Fairness Trust, said the current system is unsustainable and risks leaving younger generations with lower living standards and “greater financial insecurity” when they stop work.

The review recommends setting the state pension at a fixed share of average earnings, currently around 30% of median full-time pay, and using the triple lock only to reach that level.

After that, increases would be linked to earnings growth, with a guarantee they would not fall behind inflation.

It also calls for a commitment to never means-test the state pension and for increases in the state pension age to be linked to rising life expectancy, but introduced gradually to give people time to plan.

IFS director Paul Johnson said: “The current generation of retirees is, on average, doing much better than any previous generation. Levels of pensioner poverty have fallen dramatically and, overall, the retired population are better off than the working-age population. But there is a risk that policymakers have become complacent.”

He added: “Without decisive action, too many of today’s working-age population face lower living standards and greater financial insecurity through their retirement.”

Two in ten private-sector workers and four in five of the self-employed are not saving into a private pension, according to the IFS. Even among those who are saving, many will fall short of the income they need.

The think-tank proposes requiring employers to pay pension contributions of at least 3% of total pay for all workers aged 16–74, even if the employee does not contribute. It also wants a modest rise in automatic-enrolment contributions and changes to tax returns to make saving easier for the self-employed.

The IFS estimates the changes could boost private pension saving by £11 billion a year, increasing eventual retirement income by 13–14% for some low-to-middle income workers.

It also calls for more targeted help for people affected by state pension age rises. That could include extra Universal Credit for those within a year of retirement age, costing up to £600 million a year, and higher housing benefit for older pensioners in private rentals, at a cost of about £150 million.

Former work and pensions secretary David Gauke, who chaired the review, said: “The proposals put forward maintain an important balance between the state, employers and workers. Pensions need long-term planning and, ideally, a broad consensus.”

The abrdn Financial Fairness Trust said: “Many low earners… are not on track to achieve a standard benchmark… many are not saving at all… action is needed sooner rather than later to avoid problems growing and to future-proof pensions.”

The IFS said its package of reforms, which also includes help with consolidating small pension pots and better guidance for retirees, would “create a pension system fit for the next generation.”

A spokesperson for the DWP previously told This is Money: “The Government has no plans to means-test the state pension.

“We are committed to supporting pensioners – with millions set to see their state pension rise by up to £1,900 this parliament through our commitment to the triple lock.”