Steve Webb has called for any new government to compromise on the triple lock, arguing a “middle way” would control costs and focus annual increases on those who need it most.
Setting out a three-point pensions manifesto, Royal London proposed retaining the triple lock for all those on the old ‘basic state pension’ – those who retired before April 6 2016 – but reverting to earnings indexation for those on the new state pension.
It said the change would save about £500m a year by 2021/22, rising to almost £3bn by 2027/28.
The policy would also help older, poorer pensioners because newly-retired pensioners were, on average, £100 per week better off than retirees over the age of 75, it said.
Theresa May has yet to set out the Conservatives’ proposals for the triple lock ahead of the June General Election, while the Labour party has promised to keep the triple lock until 2025.
The triple lock ensures the government increases the state pension each April by the higher of growth in average earnings, the Consumer Price Index or 2.5%. The current Conservative government said the controversial policy would be kept until 2020, but this came before the announcement of the snap General Election.
Royal London policy director Steve Webb said: “The triple lock has delivered big improvements to pensioner incomes since 2010 but political parties will be concerned about the long-term cost implications of this policy on top of increased spending on health and social care associated with an ageing population.
“On the other hand, abolishing the triple lock outright would leave many existing pensioners on relatively modest incomes, with older pensioners facing much lower living standards than the newly-retired.”
He added: “A ‘middle way’ approach would preserve the triple lock for those who reached pension age under the old state pension system, whilst reverting to an earnings-link for the newly retired. This would cap the cost of the triple lock whilst focusing spending increasingly on the older and poorer section of the pensioner population.”
Webb also proposed extending auto-enrolment to the self-employed and implementing annual contribution step-ups that workers would have to opt-out of to avoid.