State pension triple lock in chaos as country faces ‘retirement crisis by 2040’ | Personal Finance | Finance
A new report has raised doubts about the future of the state pension triple lock, as the policy’s cost is expected to triple over the next five years. Experts warn that the UK could face a retirement crisis by 2040.
The Office for Budget Responsibility’s latest fiscal risks and sustainability report warns that the nation’s finances are in a “vulnerable position”, with the debt-to-GDP ratio forecast to jump from 94% today to 270% by the early 2070s. The projected rise in state pension spending is the second-largest increase in non-interest Government expenditure, making it a major factor in the OBR’s repeated conclusion that, if current policies continue, Government debt will not be sustainable in the long term.
According to the report, the annual cost of maintaining the triple lock could reach £15.5billion by 2030, three times higher than the OBR’s original estimate.
The triple lock, introduced in 2011, means the state pension rises each year by the highest of inflation, wage growth, or 2.5%. According to the OBR, this policy, combined with a growing number of people above state pension age, has steadily increased the cost of the benefit.
State pension spending previously accounted for around 2% of the UK economy. Now it makes up about 5%, and by the early 2070s, it is forecast to rise to 7.7%.
Beyond the pressure of the cost of the triple lock, some experts have warned that the country is contending with a broader retirement crisis, GB News reports.
Catherine Foot, the director at the Standard Life Centre for the Future of Retirement, said: “In all but its least optimistic life expectancy scenarios, the OBR projects significant increases in public spending.
“A sizeable portion of this increase will be driven by more people receiving the state pension for longer, as well as the triple lock driving up the State Pension amount people receive. At the same time, rates of individual retirement savings are falling far behind what our longer lifespans now require.
“This poses serious questions about the UK’s future retirement adequacy. Our research shows the UK is on track to face a retirement crisis by 2040 if current trends persist, with the majority of retirees expected to have insufficient savings. That isn’t a reality the Government or pensioners want to face.”
Ms Foot continued: “We urge the Government to commit to begin the adequacy review at the earliest opportunity and set out a roadmap to improving retirement adequacy. The review has the potential to deliver real change that will improve the retirement prospects of millions of people, especially when combined with the Government’s broader pension reform agenda.”
New research by asset management firm Hargreaves Lansdown found that only 34% of people have a clear idea of how much income they will need in retirement. People aged over 55 fared slightly better, with 37% feeling confident.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Just over one third of people could be sleepwalking into a retirement nightmare by not knowing how much income they will need in later life. This rises to just over 37% of people aged 55 and over, which is surprising given their proximity to retirement age.”
Echoed Ms Foot’s calls, Ms Morrissey added: “The whole issue of pension adequacy will be front and centre as the Government gears up to launch the second part of its long-running Pension Review. Encouraging people to get to grips with what they have so far and think about whether it gets them to where they need to be will also be vital in boosting retirement outcomes.”
Economists have supported the idea that the triple lock policy should be replaced with a new measure, arguing that the policy’s current trajectory is unsustainable.
Economist Ben Ramanauskas wrote on X: “Triple Lock needs to be replaced with a single lock indexing the State Pension to average earnings growth. It will be far more sustainable and give pensioners more of a stake in productivity gains.”
However, the Government has said it was “committed” to retaining the current policy until the end of parliament. Responding to the report, a Treasury spokesperson said: “We are committed to supporting pensioners and giving them the dignity and security they deserve in retirement.”
