US Edition
The annual cost of funding the state pension risks surging by as much as £45bn within decades if the triple lock pledge is maintained, the Institute for Fiscal Studies (IFS) has warned.
State financial support to fund the triple lock has already jumped by £11bn a year since the policy was introduced in 2011, the IFS said, compared with if it had been linked to either wages or inflation.
The triple lock on the state pension means that it increases each April in line with the highest of September’s inflation, wage growth or 2.5pc.
Official data published on Tuesday is expected to show that wages grew by 8pc in the three months to July. This will effectively lock in a rise of at least 8pc when the Government announces changes to the triple lock in April.
The Government temporarily suspended the wages element of the pensions triple lock for 2022-23 when data was distorted by the Covid pandemic.
This year, the state pension jumped 10.1pc, the biggest rise on record and equivalent to a £6bn increase in spending, taking the total bill to £110bn. In the 2024/2025 financial year, these costs are expected to surge to £135bn, according to the Department for Work and Pensions (DWP).
The IFS said that maintaining the triple lock in its current form could increase state spending by between £5bn to £45bn a year by 2050, when people who are in their early 40s today are expected to reach retirement age.
Economists at the think tank warned that the current system made it more difficult for individuals to plan for their retirement.
If the triple lock is kept in place indefinitely, the state pension could potentially be worth between £10,900 to £13,400 per year in today’s terms by 2050, a difference of £2,500, the IFS said.
The difference in savings needed to fund retirement for each scenario is around £50,000 to £60,000.
Heidi Karjalainen of the IFS said: “The triple lock makes it especially hard to know how much you might receive from a state pension and how much the state pension will cost the state in the future.
“An additional real risk is that retaining the triple lock for too long increases state pension spending so significantly that it leads to insurmountable pressure for a much higher state pension age.”
The IFS’s warning came as official figures showed Britons are opting to retire earlier than they did a year ago, despite the Chancellor’s push to get older workers to rejoin the labour market.
On average, women are retiring at 64, four months earlier than a year ago, according to data published by the DWP.
Men are leaving the workforce at an average age of 65.3, compared with 65.4 in 2022.
The UK’s employment rate remains 0.8 percentage points below its pre-Covid level, which experts attribute to a surge in people retiring early or quitting because of long-term sickness.
The latest figures show that an increasing share of older people who have left the workforce are citing sickness or disability as the main reason, with the figure rising 3.2 percentage points to 42.3pc over the last year.
In contrast, the proportion saying they willingly retired fell by 2.5 points over the same period to 30.9pc.
Under plans unveiled by the Government on Tuesday, hundreds of thousands of people are expected to find it harder to claim they are too sick to work.
Britain’s benefits bill is projected to cost £26bn in 2023 alone, with this forecast to rise to £77bn a year by 2027, as one in eight of all working age people are expected to claim some form of disability benefit.