UK government urged to scrap ‘triple lock’ on state pensions
New data from the Adam Smith Institute (ASI) shows that the state pension could become ‘insolvent’ by 2036 unless the triple lock is suspended.
The ASI says that recent increases to national insurance have barely shifted back the expected crisis point where welfare payouts will dwarf total national insurance tax receipts, which the think tank says would technically make the state pension fiscally unsustainable.
The state pension is the largest component of the UK’s welfare bill, and it is becoming increasingly unaffordable for the British government, largely due to the ratcheting effect of the ‘triple-lock’ commitment.
State pension is paid using proceeds from National Insurance tax, not from a dedicated pension pot. Once the welfare bill grows larger than the government’s tax take, it will be forced to rely on the National Insurance Investment Account Fund, which invests surplus funding back into the economy, to close the deficit.
The ASI predicted that from 2040 onwards, this fund will begin to deplete as it is used to cover state pension payments.
In 2018, the State Pension’s total lifetime liability to the British people was measured at £8.9 trillion, which is three-times the UK’s current GDP, and this figure is set to grow further.
The ASI noted that thanks to the triple-lock system, the average person born in 1956 will receive £291,000 more than they paid in National Insurance tax, which it said creates an economic burden on working-age people who subsidise a growing proportion of the population.
UK demographic data indicates that by 2040, 22.7 million people are expected to be claiming the benefits including the State Pension, but only 34 million people of working age will be paying taxes to fund them.
The answer proposed to this problem by the ASI is straightforward but politically fraught: suspend the triple lock for state pensions to protect public finances.
“Struggling workers and firms will not be able to subsidise the ballooning welfare bill for much longer. We must be clear – the state pension is a benefit, not one paid into over a lifetime, but drawn out of current taxation,” said ASI Director of Public Affairs Maxwell Marlow.
“Even if the economy recovers beyond forecasts, the State Pension in its current form remains grossly unsustainable. Working people are already taxed to the hilt to fund pension-benefit payments and this unfairness will only deepen as our demographic deficit grows.”
“If the government is serious about securing Britain’s finances, it must suspend the triple lock immediately and move towards a system that is honest about the challenge posed by an ageing population,” Marlow said.
