Govt urged to update state pension triple lock approach amid cost-of-living crisis

The Pensions and Lifetime Savings Association (PLSA) has argued that there is a “strong case” to align the state pension with a minimum income standard, such as the PLSA's minimum Retirement Living Standard.

In written evidence to the Work and Pensions Committee (WPC) on the cost-of-living crisis, the PLSA argued that a strong case could be made for setting the state pension at a “somewhat higher level”, noting that almost half (47 per cent) of those not retired cannot afford to save right now due to the rising costs of everyday living.

“Given that the state pension makes up the majority of most people’s retirement income and given that wage growth has been weak in the last 15 years (including periods of real wage decreases) it will be harder for people to save for an adequate private and occupational pension," it stated.

In light of this, the PLSA argued that the value of the state pension should be set at a level to protect pensioners from poverty and to ensure they do not fall behind a minimum level as a proportion of national average earnings.

In particular, the association suggested that the triple lock could be adapted to track earnings once the level reaches a minimum poverty avoidance income level, such as the PLSA’s minimum retirement living standard of £10,900.

This, according to the PLSA, would better reflect the aim for the state pension to keep pace with working age incomes, with a floor to protect against any periods when wages fall.

However, the PLSA also welcomed the government's continued commitment to reinstate the "vital" state pension triple lock for 2023-24, after it was previously suspended due to the impact of the Covid-19 pandemic on the earnings measure.

The government recently reiterated its commitment to apply the state pension triple lock next year, confirming that, "subject to the Secretary of State’s review, pensions and other benefits will be uprated by this September’s CPI which, on current forecasts, is likely to be significantly higher than the forecast inflation rate for 2023/24".

The decision to suspend the triple lock has faced criticism in recent months, with industry experts warning that the rising levels of inflation will mean the value of state pension will decrease in real terms for many and may risk pushing pensioners in poverty.

“With the state pension increased by just 3.1 per cent in April 2022 (in line with CPI at the time), this represents a 5.9 per cent loss in pensioners purchasing power," the PLSA explained in its written evidence.

Indeed, these concerns were raised by a number of organisations in the WPC's recent call for evidence on the cost-of-living crisis, with the Joseph Rowntree Foundation suggesting that the uprating for 2022 had the "biggest fall in the real value of the basic rate of unemployment benefits in 50 years".

In particular, the foundation raised concerns over the timing of the usual uprating approach, where uprating in spring is based on the previous autumn's inflation, arguing that this year has been "exceptional" with the usual approach "not sufficiently responsive to the extraordinary rise in inflation."

In light of this, it recommended that government uses a much more up to date inflation measure to calculate uprating each year, to ensure there is significantly less time between the CPI measure and subsequent uprating.

"Whilst this shorter implementation period may have been more challenging to implement for legacy benefits, it should be feasible to implement within Universal Credit given the new system’s responsiveness," it explained.

"For the present, government should commit to a much shorter timeframe for annual uprating between measuring inflation and uprating accordingly, to ensure benefit uprating genuinely reflects inflation for the year in question."

Similar calls for change were also made by Age UK, which stated: "We
recognise that there are technical administrative reasons why Department for Work and Pensions (DWP) needs time to implement the changes but would like the DWP to conduct a review to establish what changes are required to its systems and processes in order to close the gap."

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