Advocates Call for Abolition of State Pension's Triple Lock Guarantee
In a recent report, the Institute for Fiscal Studies (IFS) has recommended a series of reforms to the UK's state pension system and private pension savings, aiming to create a pension system that caters to the needs of future generations. The proposals focus on strengthening the state pension and boosting private pension savings, with a particular emphasis on vulnerable groups such as low earners and the self-employed.
Paul Johnson, from the report, expressed concern about government officials becoming complacent on benefits for non-working age Britons. He noted that today's working-age population is likely to face lower living standards through their retirement.
The IFS proposes a "four-point guarantee" to increase confidence in the state pension as a stable and secure basis of the pension system. This includes adopting a target level for the new State Pension as a fraction of average earnings across the economy. Once this target is met, the state pension should rise in line with average earnings growth to preserve its value. The State Pension should also grow at least as fast as inflation, and the State Pension age should only increase in line with rises in longevity at older ages. The government should commit to never means testing the State Pension, ensuring it remains a reliable and universal benefit.
Regarding private pension savings, the IFS recommends reforms to increase the number of workers saving into private pensions and to help many others save more, particularly focusing on periods when individuals are better able to contribute. Specific attention is called to the needs of low earners who may be adversely affected by increased contribution rates and to the self-employed, making it easier for them to save. The report also proposes improved management of pensions through retirement, helping individuals make the most of their pension pots in their retirement years.
These measures are estimated to boost private pension savings by around £11 billion a year, helping combat the risks of lower living standards and greater financial insecurity among the working-age population entering retirement without sufficient private savings.
According to the Office for Budget Responsibility (OBR), spending on pensioners increases total welfare spending between 2023-24 and 2029-30 by 0.5% of GDP. The OBR also predicts that pensioner poverty is below that for other demographic groups. However, pension benefit spending is predicted to reach £181.8bn by 2030, with the triple lock being a "main driver" of this increase.
The government's bill on the state pension is set to come to £145.6bn next year, and many more employees have been brought into workplace pensions by the successful roll-out of automatic enrolment. The IFS has suggested that the government should scrap the £145bn triple lock on the state pension and mandate that all employers make contributions to pension schemes worth three per cent of workers' pay.
The second phase of the government's pension review will focus on "retirement adequacy". The IFS has stated that one in five private sector employees and 80% of self-employed workers are not saving in a private pension. To address this, the IFS has proposed that the UK government should model its system on Australia and peg the state pension to inflation.
In summary, the IFS calls for a secure, earnings-linked state pension combined with policies that boost private pension saving participation and amounts, tailored especially to vulnerable groups such as low earners and the self-employed, alongside improved pension management support in retirement. This multi-pronged approach is presented as an affordable roadmap to ensure adequacy and financial security for future retirees in the UK.
- To ensure financial security for future retirees, the IFS recommends a secure, earnings-linked state pension that aims to cater to the needs of future generations, particularly vulnerable groups such as low earners and the self-employed.
- In addition to strengthening the state pension, the IFS proposes reforms to private pension savings, focusing on increasing the number of workers saving into private pensions and helping many others save more, especially low earners and self-employed individuals.
- Wealth-management and career-development can be facilitated through improved management of pensions during retirement years, helping individuals make the most of their pension pots.
- Education-and-self-development in personal-finance is crucial for individuals to understand the importance of saving for retirement, given that one in five private sector employees and 80% of self-employed workers are not currently saving in a private pension.
