Pensions experts say Conservative plans to reduce the generosity of the state pension are a risk, but widely anticipated.
The party’s manifesto proposes ditching the “triple lock”, in which the pension is raised in line with the highest of average earnings, prices or 2.5%.
From 2020, its plan is to cut the 2.5% element, to leave a “double lock”.
Labour and the Liberal Democrats have vowed to maintain the triple lock throughout the next Parliament.
The demise of the triple lock under Conservative plans has long been predicted. However, many pensions commentators say it is political considerations that have determined the timing.
Hugh Nolan, president of the Society of Pension Professionals, said: “Pensioners have been the main beneficiaries of political tinkering with pensions and benefits recently, reflecting the power of the grey vote over unregistered youngsters.”
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Richard Parkin head of pensions policy at Fidelity International, said that Theresa May was using “a strong lead in the opinion polls to kill some of the sacred cows of Tory policy for the elderly”.
Darren Redmayne, chief executive of Lincoln Pensions, said it was a brave decision to water down the policy alongside changes to social care contributions and winter fuel payment cuts.
“These reforms will all have significant impacts on middle-class pensioners that are traditional Conservative voters,” he said.
Figures from the Institute for Fiscal Studies (IFS) showed that total pension spending had increased by 25% since 2010-11, compared with a 14% rise in earnings and a 15% rise in prices, prompting the IFS economists to declare that any long-term commitment to the triple-lock would be “unaffordable”.
A recent review by former CBI director-general John Cridland, who was appointed as the government’s independent reviewer of state pension age last year, recommended that the triple lock be withdrawn in the next Parliament.
All the parties will maintain the triple lock until 2020, and even after that there may be relatively little difference to pension rises whichever party is in power.
For example prices, as measured by inflation, are predicted to rise by about 2.3% in the second quarter of 2020, according to the Bank of England – very close to the 2.5% pledge included by Labour and the Lib Dems from 2020. Wage growth is predicted to be more than 3% by 2019, potentially setting the mark for pension rises, although these forecasts are notoriously difficult.
“It is pretty rare for both average earnings and inflation to be below 2.5%. Hence getting rid of the 2.5% element of the triple lock does little to change the projected long-run generosity of the state pension,” said Carl Emmerson of the IFS.
The divide between the parties’ policies does rekindle the debate over the fairness of the state pension, paid to 13 million people, and the level of benefit entitlement for different generations.
Tom McPhail, head of policy at Hargreaves Lansdown. said: “The triple lock has largely done its job in improving pensioner incomes in recent years and protecting the retired population from the effects of the post 2008 recession. A double lock still provides a more robust level of security than is enjoyed by the majority of the working population.”
However, TUC general secretary Frances O’Grady said: “The UK has more than 1.5 million pensioners in poverty. And one of the lowest state pensions in the advanced world.
“The triple lock was meant to restore the state pension after it spent decades falling behind wages. That job isn’t finished. This is a bad call.”