Young people want to scrap pensions triple lock

News


07 Jun, 2017

Young people want to scrap pensions triple lock

Young people want to see the state pension triple lock axed as they will shoulder much of the burden for paying for it, but they could be making a huge mistake according to Ageon.

The triple lock guarantees the state pension to increase either in line with wages, prices, or by 2.5% a year - whichever is greatest. Introduced in 2011 by the coalition government, it has been responsible for pushing the value of the basic state pension up to its highest share of average earnings since April 1988.

Research from Aegon showed that there was most support for the triple lock among those who have already retired or are close to retirement age. Nearly 3 in 4 people aged 70 and over support the triple lock, while 68% of those in their 60s support it, and 49% of those in their 50s.

However, the younger people are, the less support they showed for the idea. From those aged 18-30, only 38% of people support the triple lock - and 43% of them would like to see pensions relative to price inflation instead.

Nevertheless, it's easy to understand as the younger generation will spend the greater part of their working lives paying taxes in order to pay for these higher state pensions. On the other hand, they are being told that their state pension age will rise into their 70s and beyond, and there's a growing sense of doubt that state pensions will exist at all by the time they come to retire.

They are also living through a time of stagnant wage growth, so it's difficult to argue that they should pay for other people to have an increasing income out of their taxes.

However, on the flip side, those who are a bit longer in the tooth, have experience of the difficulty of linking pension income to a single measure. Back when it was linked to price increases, it was vastly outpaced by wage rises, so pensioners became comparatively poorer every year. If it was linked to wage increases, meanwhile, there's a risk that at times of rising prices and falling wages those relying on the basic state pension - and living on a low income - would not be able to make ends meet.

Additionally, those who stand to gain the most from the triple lock are younger people - assuming that there is a state pension in a few decades’ time.

In the seven years since the lock was introduced, the pension has risen £107 more a year than it would have done under a double lock. Given that some of those questioned have 50 years to retirement, it's easy to see how much income they could miss out on in retirement if the state pension was moved to a double-lock - or even a single one.

Given that when these younger people come to retire, they won't have the benefit of generous final salary pensions, the extra income from a state pension will be even more essential.

Pensions Director at Aegon, Steven Cameron, said: "In some sense, offering less generous increases to the state pension would benefit younger age groups. State pensions are not funded in advance, so it's the income tax and National Insurance contributions of today's working population that are funding the payments those in retirement receive. However, in the long run younger workers could miss out from a pension that is constantly uprated by a minimum of 2.5% before and after they retire. These findings highlight the intergenerational impacts that policy changes can have not just now but also in the future as people's priorities change over time”.

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