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The Actuary The magazine of the Institute & Faculty of Actuaries
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Poorest may never be able to retire if pensions triple lock is maintained

The state pension age (SPA) will need to exceed life expectancy in poorer areas of the UK in order to sustain the pensions triple lock, according to research from the Work and Pensions Committee published today.

28 FEB 2017 | CHRIS SEEKINGS
Increasing SPA will "exclude ever more people from the state pension altogether" ©iStock
Increasing SPA will "exclude ever more people from the state pension altogether" ©iStock

The measure involves increasing the state pension annually by the highest of price inflation, average earnings growth, or 2.5%, with the committee’s findings showing that the SPA would have to rise to 70.5 years by 2060 to maintain it.

This is higher than the average male life expectancy across hundreds of areas in the UK, including parts of East London, Manchester, Blackpool, Leicester and much of Glasgow.

Committee chair, Frank Field, said: “With the triple lock in place the only way state pension expenditure can be made sustainable is to keep raising the SPA.

“This has the effect of excluding ever more people from the state pension altogether. Such people will disproportionately be from more deprived areas and manual occupations, while those benefitting most will be the relatively prosperous.”

The latest research comes after the committee published their intergenerational fairness report last November, which called for the scrapping of the triple lock.

It argued that there is a ‘trade-off’ between increasing the state pension and the SPA, with the cost of a more generous pension being offset by restricting its availability to fewer people. 

Instead a ‘smooth earning link’ should be introduced, to ensure a new state pension has a benchmark proportion of average earnings it could not fall below, and by 2020 would have a headline rate close to historic highs.

If inflation exceeds earnings growth, then price indexation would be used to protect the state pension’s purchasing power, until it is back at its benchmark level.

“By 2020 the state pension will be at a level where it will provide a decent minimum income for people in retirement to underpin private saving, and any savings they have will be kept on top of, not clawed back from the state pension," Field continued.

“The triple lock will have done its job and it will be time therefore to retire it.”

MPs will debate the committee’s report, and a government motion to approve £2.1bn of extra public funds for the Department for Work and Pensions to spend in 2017, this afternoon.