Home Estate Planning The £950bn pension plan: Why the ‘triple lock’ is entirely unsustainable

The £950bn pension plan: Why the ‘triple lock’ is entirely unsustainable

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If you’re reading this on your way to work, have you considered how many more commutes you will make in your lifetime? The current pension age is 66 but if you were born after 5 April 1960 it’s 67. This is set to rise to 68, but a decision on the exact timetable has been deferred until after the election and some researchers say it should be as high as 71. So if you’re under 40, it’s anyone’s guess when you’ll be able to retire.

If you’re a pensioner, however, you face no such uncertainty. Protected by the ‘triple lock’, your income will rise every year in line with either inflation, wage growth or 2.5 per cent – whichever is highest. That means yesterday you got an increase of 8.5 per cent far exceeding inflation which currently stands at 3.8 per cent, having got a whopping 10.1 per cent last year, way ahead of earnings. Lucky you.

This is completely unsustainable. The Centre for Policy Studies estimates that spending on the over-65s will account for 21.3 per cent of GDP by 2072, or £950bn – more than the British state currently spends on everything put together. Paying for this through tax alone would mean either doubling the share of GDP that is taken through income tax or tripling that contributed by corporation tax. And with an ageing population and declining birthrates, an ever-dwindling workforce will be shouldering this burden. 

A common refrain you hear from the golf courses is that pensioners have paid in all their lives, but this is just not true – the state pension is paid for out of the taxes of current workers. And research from the Resolution Foundation has shown that the average person born in 1956 will receive £291,000 more in state benefits than they ever paid in taxes.

The reason older generations are treated so generously is that they are a powerful political force. General election turnout among over-65s is about 80 per cent, versus 50 per cent for under-35s. Indeed some projections show that over-55s will make up the majority of voters turning out on election day this year. Hardly surprising then that both Labour and the Conservatives have committed to retaining the triple lock.

That will, eventually, change. And whichever party is willing to go first may find themselves richly rewarded. 

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