Plans laid out to scrap state pension triple lock | Personal Finance | Finance

A think tank has received criticism for its proposal to replace the state pension triple lock. The organisation, headed by former Labour Prime Minister Tony Blair, says that a new fund should pay out early if people need it for health, unemployment or caring, and describes the current state pension system as “unaffordable”. The Tony Blair Institute for Global Change (TBI) said in a recent report that the current payment system is “outdated, increasingly unaffordable and too rigid for the way people live and work”.

The triple lock ensures that the basic and new state pensions will rise every April by whichever is highest: inflation, average wage growth or 2.5%. Rachel Reeves recently said that, although difficult decisions will have to be made, she is currently not considering dropping the triple lock. The state pension is reportedly one of the government’s largest areas of spending. TBI says a new plan is “unavoidable” with Britain’s ageing population, and proposed the Lifespan Fund instead.

“We propose replacing the state pension with the Lifespan Fund,” the institute says. “Individuals would build credit through work and other recognised activities, draw on it during working life for defined purposes, rebuild it once back in employment, and convert it into a guaranteed pension at retirement.”

It lists several potential benefits to this, saying it’s fairer, more affordable and more flexible. It says the current state pension is not “fit for the future” and describes it as “too inflexible for how people live and work”.

The change to pension payments would keep state pension spending at around 5.5% of GDP and save the government £66bn in additional costs by 2070, the report claims. It also says the triple lock should be scrapped by 2030 and increases should only be linked to rises in earnings.

The Department for Work and Pensions has not endorsed the plans and said the triple lock is here to stay for the duration of this Parliament.

Under the proposed new plans, people would build up their entitlements through work, caring, study or other recognised activity. The report reveals that each year of contribution would provide up to 20 years of state-backed support.

The annual amount paid into a person’s Lifespan Fund would be adjusted to reflect their age and health, linked to their medical records, which is sure to draw criticism.

Pensions expert Steve Webb warned that this new proposal is “deeply troubling”. He told the iPaper: “The idea of linking state pension payments to individual health records and individual life expectancy is deeply troubling.

“Leaving aside issues of confidentiality and data quality, it is very hard to make a precise leap from health records to life expectancy.

“The report says that they would not want to pay higher pensions to those who had poorer health because of lifestyle choices such as smoking, but it is very hard to see how they would exclude the impact of smoking on someone’s overall health.”

Report author Tom Smith, director of economic policy at the TBI, said: “Britain’s state pension system was built for a different era. We can’t keep pouring money into a system that is increasingly unaffordable.

“Pension spending must be contained, and that means the triple lock cannot continue after the next election.

“Ending it will require political leadership from all parties – but that should only be the first step. Real reform must also build a better system: one that is fairer, more flexible, and designed for how people live today.”

“Being able to access your state pension earlier at a reduced rate could benefit some, particularly those with lower life expectancy,” said Tom Selby, director of public policy at AJ Bell

He warned: “But most people simply have no idea how long they might live for and if large numbers of people go down that road, it could exacerbate retirement income challenges later in life.”