Officials have issued a warning over the future of the pension triple lock as Andy Burnham has hinted at his plans for the measure.
The Office for Budget Responsibility (OBR) has warned the pension triple lock will add billions of pounds to public spending in the decades ahead, causing debt levels to spiral. Debt could be three times the size of the economy if they are not addressed by governments, the OBR said.
Andy Burnham, set to become Britain’s next Prime Minister as he will likely stand unopposed in the Labour leadership election, hinted at his plans for the triple lock recently.
Mr Burnham said ‘it is important that the commitment in the manifesto stands’ last Friday (July 3). Labour’s 2024 general election manifesto commits to retaining the triple lock, suggesting Keir Starmer’s expected successor will keep the mechanism in place.
Under the triple lock, the UK’s state pension rises each year by whichever is highest out of inflation, wage growth or 2.5 per cent. Currently, men and women aged over 66 qualify for the state pension.
But Britain’s increasingly ageing population will present a major headache for public finances in the coming years, the OBR says.
Under its baseline scenario, state pension spending is projected to rise from 5 per cent of gross domestic product (GDP) to about 9 per cent by 2075-2076, and is therefore a big driver of increased pressure on overall public spending.
This is partly driven by there being more older people in the population, while the triple lock is estimated to account for about a third of this rise, the OBR explained.
Volatile inflation and earnings growth means the triple lock has been more costly than initially expected when the measure was introduced in 2012.
The OBR estimates that the triple lock will have added about £15.5 billion to state pension spending each year by 2029-2030 – up from the £5.2 billion a year that was originally costed.
“It is certainly a substantial pressure on public spending over the longer term and is making a very significant contribution to that upward pressure on spending,” said Tom Josephs of the OBR.
If the state pension rises with earnings rather than the triple lock then it would reduce pressure on spending by about 2% of GDP, the OBR estimated in its modelling for alternative options.
The OBR used its report to call on the UK to take early action to prevent debt from moving on to an “unsustainable and ever-rising path”.