DWP state pension warning as ex-BoE economist calls for triple lock to be axed | Personal Finance | Finance
A former Bank of England economist has called for the state pension triple lock to be “abandoned”. Neil Record branded the policy a “mess” and said the state pension needed to be radically overhauled as its cost is set to hit £147billion this financial year.
Mr Record said the triple lock guarantee has become untenable financially and morally as retired people benefit more than the tax-paying workers who fund the state pension. He said the “huge burden” of the triple lock should be replaced with a policy which links earnings to retirement before switching to increases linked to CPI post-retirement.
The author of Sir Humphrey’s Legacy, writing in The Telegraph, said he would upward-taper the state pension in a way which saw the overall spend remain the same but retirees of increasing age receive increasing pension payments in real terms based on how old they are.
Mr Record said he would also increase the number of contributory years needed to qualify for the full state pension from 35 to 40 years.
He added: “Finally, I would continue to strongly encourage workers to make their own provision for retirement (as the relatively new auto-enrolment workplace pensions are doing) so that the state pension does genuinely form the bedrock of retirement income, not the totality.”
Under the triple lock, the state pension increases every April in line with whichever is the highest of total earnings growth, CPI inflation or 2.5%. Total wage growth including bonuses grew to 4.7% in the quarter to July.
While the final piece of the puzzle will not come until inflation figures for September are published in October, it is thought unlikely that the CPI rate will be higher than 4.7%.
This means the wage rise will be used to calculate the figure for the annual increase, putting pensioners on track for a 4.7% uplift in the state pension next year.
Helen Morrissey, Head of Retirement Analysis at broker Hargreaves Lansdown, this week warned the increase in the state pension would put many pensioners close to the threshold for paying income tax.
She said: “If they receive the 4.7% uplift it takes their annual state pension to around £12,535 per year which leaves them just a whisker under the threshold of paying basic rate tax.”
Ms Morrissey added: “The increase will also add further pressure on the Government who are battling an already burgeoning state pension bill.
“The Government has committed to keeping the triple lock in place for the rest of this Parliament, but longer term its future could be uncertain.
“With a review into state pension age also ongoing, other options could include an extension of the current timetable with dates for state pension age running into the late 60s and beyond.”
Hargreaves Lansdown said based on a rise of 4.7%, a full new state pension would increase from its current level of £230.25 per week to £241.05 per week from April.
Those retiring on the basic state pension would see their weekly income increase from £176.45 per week to £184.75.
