The triple lock guarantee of increases in the state pension should be abandoned to ensure the economic recovery from the coronavirus crisis is fair to working-age households, a think-tank says today.
The Social Market Foundation said that the huge economic cost of the emergency measures deployed to manage the epidemic must be shared fairly between old and young in the years ahead.
Huge government deficits are expected after the crisis, forcing ministers to reform and reduce state spending to help repay additional borrowing.
In a new briefing paper, the SMF said that any future austerity programme must not favour pension spending over working-age welfare, as happened after the financial crisis.
The triple lock is a legal guarantee that the basic state pension will rise in line with the lowest of earnings, inflation or 2.5%. The policy helped ensure that typical pensioner household incomes rose during the last decade, even as working-age households suffered almost no wage growth.
Replacing the triple lock with a “double lock” that removed the 2.5% promise would save £20 billion over five years, the SMF estimated, since pensions would rise in line with what are expected to be lower rates of growth in wages and prices. Those savings would help meet the huge costs arising from the lockdown.
The economic impact of lockdown policies is falling most heavily on working-age Britons, many of whom face redundancy followed by years of higher taxes, reduced services, and slow economic growth.
Lockdown policies have rightly been deployed to protect the lives and wellbeing of those most vulnerable to the virus, a group that includes older people. To retain social cohesion and public support, fiscal policy should demonstrate “reciprocity” for that support, the SMF said.
Maintaining the triple lock during the economic recovery would put an additional financial burden on younger workers and strain the social contract between the generations, according to Scott Corfe, SMF Research Director.
The report said: “In the post-crisis world of slow, painful recovery, a triple lock ensuring a 2.5% minimum rise in pensions would constitute enormous generosity to pensioners, at a time when working-age adults face low or no wage growth and significant unemployment.
“In the context of an annual deficit that could reach £200 billion as we emerge from the crisis, shaving £4 billion a year from the growth of the £100 pension bill is not too much to ask.
“It would also demonstrate reciprocity from a group whose wellbeing was, rightly, prioritised during the lockdown phase of the crisis.”
Scott Corfe, the SMF’s Research Director said: “Quite rightly, society is making sacrifices to protect its elderly right now. There is a clear case for intergenerational reciprocation when it comes to meeting the fiscal costs of the crisis in the years ahead.
“The crisis has emphasised our obligations to other generations, even in the face of personal sacrifice. This spirit must be maintained when the dust settles – with the economic costs of responding to the crisis shared fairly across the generations.”