The Resolution Foundation has called for the state pension triple lock to be replaced with a ‘smoothed’ earnings link, warning the current policy is fiscally unsustainable.

Under a smoothed earnings link, the state pension would temporarily rise in line with inflation when it exceeds earnings growth.

When earnings growth rises above the level of inflation, it would not be immediately used to uprate the state pension, as would occur with a ‘double lock’ policy.

Instead, it would be uprated in line with inflation until its value had returned to the same fraction of average earnings as it had before the real decline in average earnings.

The Resolution Foundation estimated this would save around £650m in 2029/30, net of increased spending on means-tested benefits and lower income tax receipts, compared with maintaining the triple lock.

An alternative proposal was a ‘smoothed’ triple lock, whereby the state pension would rise by at least 2.5 per cent a year.

Under this proposal, the state pension would rise by 2.5 per cent if it was higher than both inflation and earnings over the year.

However, when growth in earnings returned to exceeding 2.5 per cent, this would not be passed on in full to the state pension and would be smoothed so the state pension kept track with earnings over the long term.

In the paper, the Resolution Foundation described the triple lock as unfair and unsustainable.

“The thing not said enough in polite company is that the triple lock is a terrible policy, even for those wanting to increase the state pension faster than earnings,” the paper’s authors, Resolution Foundation chief executive, Ruth Curtice, and economist, Alex Clegg, stated.

“The ratchet built into the triple lock means that the value of the state pension ends up depending not just on the level of inflation and how fast earnings are growing, but also on how volatile they are.

“Crucially, the ratchet pushes up the state pension precisely when economic volatility is highest, such as during downturns, or during bouts of cost-push inflation, thereby increasing the riskiness of the public finances.

“It is impossible to justify why our generosity to the older population should be a function of economic volatility.”

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