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02

Triple lock could place 'unfair burden' on younger workers, say actuaries

Open-access content Friday 19th February 2016 — updated 5.50pm, Wednesday 29th April 2020

The Institute and Faculty of Actuaries (IFoA) has said the UK government’s state pensions triple lock policy is too expensive for future working generations to maintain.

2


The IFoA's comment is in response to an inquiry launched by the Work and Pensions Select Committee on ‘intergenerational fairness’ – whether there is health disparity between generations. 

They said the policy was important to adjust state incomes in the short term, but it would be unnecessary if the level of the new state pension had been properly set. 

Colin Wilson, president-elect of the IFoA, said: "The triple lock was important as a temporary measure after the link of state pension to earnings was restored in getting it to a level that is fair in relation to wages. 

"However, based on current economic trends, the triple lock will increase expenditure on the state pension as a share of GDP over the long term and will create an unnecessary drain on the future workforce."

To achieve intergenerational fairness, the IFoA said both pensions and social care must be sustainable in the long term. 

"As the number of people with care needs is rising, yet state funding is decreasing, striking the right balance between state and self-funding will be important in creating a system that is sustainable over the long term," said Wilson.

In addition, the IFoA said that priority should be given to making sure people understand their likelihood of living to much older ages, and the level of savings they will need to meet their retirement needs.  

Wilson added: "The current structure has created a ticking time bomb that the government needs to address to save people depleting their retirement savings unexpectedly to pay for care and then needing to fall back on the state."

For all forms of retirement income - state, occupational and private pensions - the IFoA argued the incentive to save should be the most important aspect of any changes, particularly to the taxation of pensions. 

It added "constant tinkering" would create a lack of trust that the benefits for current pensioners will be available for future generations. 

The inquiry closes today. 

This article appeared in our February 2016 issue of The Actuary.
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