Prime Minister Rishi Sunak is being warned the country is at a “real tipping point” over the future of the state pension, due to the “enormous ongoing cost” of the triple lock.
Earlier this month, the Institute of Fiscal Studies (IFS) proposed replacing the triple lock with a “four-point pension guarantee”, once the state pension reaches a target level.
This proposal has been brought forward due to ongoing concerns of the viability of the triple lock, which is the Government pledge to raise the state pension by the highest out of average earnings, 2.5 per cent or the rate of inflation.
Furthermore, there is growing uncertainty among the public amid hikes to the state pension age.
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The Prime Minister is being warned about the future of the state pension
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Helen Morrisey, head of retirement analysis at Hargreaves Lansdown, welcomed much of the report’s proposals, warning that 44 percent of Britons are unsure whether the state pension will exist by the time they retire.
She said: “We have come to a real tipping point with the state pension as the government considers how to manage this need for certainty with its enormous ongoing cost.
“Increasing state pension age and tinkering with the triple lock were aimed at mitigating the state’s financial burden, but this has left people unsure about what they are getting and when.
“It’s time to put the state pension on a long-term footing with an overarching review of how it works and the triple lock’s role within it.”
OPINION: We need a new state pension plan. Replacing triple lock would help pension savers now, writes Jessica Sheldon
If the guarantee was introduced, this would mean:
- Any long-term increases in the state pension will keep pace with growth in average earnings once the payment has reached its target level
- The state pension will continue to increase at least in line with inflation
- The state pension will never be means-tested
- The state pension will only rise if longevity at older ages increases.
Britons are worried about the future of the state pension
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With a General Election rumoured to be on the way, Mr Sunak will be looking for policies to attract new voters and secure his base.
According to the IFS’ report, this guarantee will help alleviate concerns over the future of the state pension.
On top of this, the report states only relying on raising the age threshold to rein in state pension spending would hit groups with lower life expectancy worse, notably poorer households.
Finally, the report recognises the pending impact of Britain’s ageing population on the public purse in the coming years.
According to the IFS, estimates show that number of people above the state pension age will rise by 25 percent by 2050 compared with today.
