The next Prime Minister has been urged to address the long-term sustainability of the State Pension Triple Lock.
Steven Cameron, pensions director at Aegon, warned that politicians cannot continue to sidestep the issue of how the lock is funded.
Mr Cameron said: "The next Prime Minister – whether or not Andy Burnham - will inherit many pressing challenges, and on that list is the future of the State Pension Triple Lock.
“While avoided by successive governments, politicians across the spectrum as well as think tanks are now increasingly questioning its long-term future and today’s political change creates the opportunity for an open and honest debate.”
Mr Cameron said it’s not a simple case of keep or scrap the Triple Lock, there are other options worthy of proper consideration.
He pointed out that the State Pension remains the bedrock of retirement income for millions of pensioners. Under the Triple Lock, the state pension increases each year by the highest of earnings growth, price inflation or 2.5%. While remaining popular among pensioner voters, retaining and often boosting their purchasing power, Mr Cameron said the mathematics are not sustainable in their current form over the decades ahead.
He said: “Recent comments from Burnham, reaffirming that he, if Prime Minister, would retain support for the Triple Lock, may provide short-term reassurance to today’s pensioners.
“But what’s needed from all major political party leaders is a longer-term vision for how the State Pension can remain fair, affordable, and sustainable not for the next three years but for the next 30 years and beyond.”
Mr Cameron pointed out that public finances are under huge and increasing pressure. “There’s no magic pot of money sitting to pay for state pensions – they’re paid for by today’s workers on a ‘pay as you go’ basis.
“With an ageing population and fewer workers supporting more pensioners, the current system is already creaking at the seams and without reform, the Triple Lock will place an unprecedented burden on working-age taxpayers, raising serious questions around intergenerational fairness.”
Looking ahead, he said a fairer approach for the Triple Lock might be to provide inflation increases as a minimum with a further uplift if earnings growth has exceeded inflation over say three years.
“This would smooth out volatility, provide greater predictability for public finances and preserve fairness for pensioners. Done properly, reform could be the saviour of the Triple Lock’s aims rather than an end. The debate now needs leadership, honesty and a genuine commitment to finding common ground across both political parties and generations."