Introduced in 2010 and with a government commitment to 2020, the triple-lock ensures that the UK state pension rises on par with average earnings, the consumer price index, or at least 2.5%, whichever is greatest.
According to the BBC, the state pension has risen by £1,100 ($1,377, €1,236) since 2010, with an increase of 2.9% in April 2016.
Retaining the triple-lock would lead to “state pension expenditure accounting for an ever greater share of national income”, the committee warned.
Millennial conundrum
Those born between 1981 and 2000 face becoming the first modern generation to be financially worse off than its predecessors.
The committee said that while pensioners have, by and large, been protected from public spending cuts, younger groups have been most impacted.
Frank Field MP, chair of the committee, said: “The welfare state is underpinned by an implicit intergenerational contract. Each generation is supported in retirement by their in-work successors. This is supported by all age groups, but a combination of factors has sent the balance out of kilter.
“It is now the working young and their children who face the daunting challenge of getting on in an economy skewed against them.”
Triple-lock replacement
A ‘smoothed earning link’ has been suggested as a potential replacement.
It would involve the new state pension having a benchmark proportion of average earnings below which it could not fall.
DWP response
A statement from the Department for Work and Pensions (DWP), however, reaffirmed the government’s commitment to the triple-lock: “We want to ensure economic security for people at every stage of their life, including retirement. We are committed to the triple-lock, which is protecting the incomes of millions of pensioners.”
Greater sense of fairness
Old Mutual Wealth’s Adrian Walker would be surprised to see the policy reversed only a few years after it was introduced but believes “it is inevitable that at some point the triple-lock promise will be reeled-in”.
“Because of the relatively low wage growth, low inflation environment we are in, the extra guarantees offered by the state pension have come under scrutiny. This has been exacerbated by the context of welfare cutbacks affecting the working age population. Against that backdrop, some argue the triple-lock is an unfair double standard.
“Linking the state pension to wage growth might introduce a greater sense of fairness by putting working age generations and retired generations on an equal footing.
Walker views the current state of the pension system and the UK’s demographic shift as a “time-bomb built into the population”.
“The current system will come under further pressure because the UK’s ageing population means we are heading toward a period where a smaller pool of working taxpayers must fund the state pension bill of a larger retired population. As a result, even small increases in state pension payments will have a big impact on public finances and this becomes more acute as the demographic shift develops over time.
“But to see MPs so forcefully recommend it be scrapped will raise real concerns that could happen sooner rather than later,” the retirement expert said.
Five-year committment
Steven Cameron, pensions director at Aegon, said: “The government will no doubt need to review the future of the triple-lock beyond the next general election as it seeks to deliver fair policies between generations.
“Those who are already in retirement have seen their income after housing costs almost catch up with those of working age largely because of generous final salary pension scheme they built up in the past but also helped by recent above inflation increases in the state pension as a result of the triple-lock.
“However, the government must not set long term pension policy on the basis of those currently in retirement as those retiring in future are much less likely to match the incomes of current pensioners.
“The state pension remains the bedrock of many people’s income in retirement and pensioners must be given some stability over its future level. We believe any government should commit to state pension increases for its five-year period in power with intentions set out in pre-election manifestos,” Cameron said.
