As a wave of inflation approaches the time has come to unpick the pensions triple-lock

Julian Harris
Follow Julian
Germany Faces Aging Population
The triple-lock was introduced in 2010 (Source: Getty)

Britain's incoming wave of inflation is expected to be temporary, driven by a weaker pound and higher global energy costs, rather than a pick-up in the fundamental factors that can prompt a rate-hike.

Either way, any kind of inflation can be a boon to highly-indebted governments such as the UK’s. No chancellor will admit it, of course, but in the right circumstances rising prices help to inflate away some of a nation’s debt pile, or at least take the edge off a stubborn annual deficit.

Read more: Sterling rises as inflation smashes Bank of England's two per cent target

Workers will feel a squeeze, while savers take a hit, but the picture is reversed for those in the red. As the value of a pound falls, every £1 in debt becomes a tad less daunting.

There is now a flipside to this fiscal boost, however – the triple-lock on state pensions. This policy guarantees payments rising in line with inflation, average earnings or 2.5 per cent, whichever is highest.

If inflation edges towards three per cent later in the year, as some City analysts expect, the government will need to cough up even more cash to pension-age Brits (the yearly bill, as it stands, is already close to £100bn).

Read more: Will rising inflation call time on the economy’s post-Brexit vote strength?

It is little wonder that political pressure is growing to scrap the triple-lock. Former CBI boss John Cridland has been examining the impending demographic timebomb for the government, and is due to report his findings this week; he will elucidate the problems waiting for us in future if the policy is maintained.

His work augments research from the Work and Pensions Committee which last autumn described rising state pension costs as “unsustainable” and “unfair”.

The issue remains emotive; some argue that pensioners who have worked their whole lives deserve a bigger payout; others say generous increases merely make up for times when the pension rose at a slower rate; they also point to the decline of private pensions, insisting the state must be prepared to play a bigger role.

Read more: Brexit will make pension deficits harder to manage

Even pensioner-rights activists are changing their tune, however, with growing recognition that the triple-lock, introduced in 2010, is politically canny but fiscally barmy.

Prime Minister Theresa May’s party is committed to maintaining the lock until the end of the current parliament, but with Labour presenting such a feeble electoral threat, she should have the courage to unpick it whenever the next election comes along.

City A.M.'s opinion pages are a place for thought-provoking views and debate. These views are not necessarily shared by City A.M.

Related articles