The triple lock policy is a ‘haphazard’ way of increasing the state pension relative to earnings, the Institute for Fiscal Studies (IFS) has said.

Introduced in 2010, the triple lock guarantees the state pension will increase each year by whichever is the highest of earnings, inflation or 2.5 per cent. The policy has seen the state pension value increase by 22.2 per cent between April 2010 and April 2016, much higher than earnings growth (7.6 per cent) and inflation (12.3 per cent).

This has pushed the value of the basic state pension up to its highest share of average earnings since April 1988. However, it has cost the government £6bn in increased spending in 2015/16, when compared to earnings and inflation costs over the period since 2011.

As a result, the IFS believes that the triple lock should not continue beyond 2020. The report explained that for a given amount of spending on state pensions there is a trade-off between the level of the state pension and the state pension age from which it is paid.

For example, with the triple lock a full single-tier pension in 2060 is projected to be worth 27.5 per cent of average earnings and will be available from age 69. However, if the triple lock is abandoned and instead index in line with average earnings beyond 2020, then a full single-tier pension in 2060 would be projected to be worth 24.2 per cent of average earnings.

For the same cost as the triple lock this could be paid from roughly age 67½. Alternatively if we wanted a higher pension at, for example, 30.7 per cent of average earnings, then keeping within the same cost envelope could be achieved by increasing the pension age further to roughly age 70½.

Instead, the IFS said that if the government wants to increase the level of the state pension relative to earnings, it should choose the level it wants (and potentially a path to get there) “rather than allowing the somewhat haphazard increases relative to earnings that result from the triple lock”.

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