The new plan to scrap the state pension triple lock

The TBI report says this outlay will rise to 7.8 per cent of GDP by 2070, or an extra £85bn a year in today’s terms, because the number of pensioners is expected to rise from 12.6m now to nearly 19m in 45 years – meaning higher taxes and greater pressure on public services.

Triple lock backed by all parties

Replacing the state pension would be the biggest overhaul in government support for retirement since its launch in 1948.

The reforms proposed by the former Labour prime minister’s think-tank would keep state pension spending at around 5.5 per cent of GDP and save the government £66bn in additional costs by 2070.

The TBI says as a first step towards reform, the triple lock should be scrapped in 2030 and state pension increases linked only to rises in earnings.

All the main UK political parties except the Greens have pledged to keep the triple lock for at least the rest of this Parliament and scrapping it is seen as a vote-loser.

The intervention by the TBI will put the spotlight back on the debate over its long-term future, however, particularly among some in government.

The TBI did not deny that the measures had been discussed with officials or ministers in government, but said the report was independent and intended to contribute to the public and political debate.

The Department for Work and Pensions said the triple lock was guaranteed for the rest of this Parliament and did not endorse the TBI plans.

‘Lifespan Fund’ would replace pension under proposals

Under the proposals, the state pension would then be replaced by a new “Lifespan Fund”, which would be accessible if people needed it earlier for ill health, retraining, career changes or caring roles, rather than only at retirement.

People would build up their entitlement to the Lifespan Fund through contributions throughout their lives, including through work, caring, study or other recognised activity.

Each year of contribution would provide up to 20 years of state-backed support at the level of today’s state pension.

If someone became unemployed and wanted extra funding beyond benefits, or needed money to retrain or support caring responsibilities, they could draw on their Lifespan Fund early.

There would be safeguards for those who wanted to access their fund early, including minimum balances which would rise with age.

However, people would be penalised for withdrawing money early as they would then be automatically enrolled into higher National Insurance contributions when they returned to work.

And the plans would also be controversial because the annual amount paid into their Lifespan Fund would be adjusted to reflect their age and health, linked to their medical records. It would pay less due to people’s current health such as pre-existing medical conditions, BMI and “lifestyle choices” such as smoking.

The TBI says this would be a fairer system because the current state pension age penalises those in poorer health, who are often those on lower incomes and with shorter life expectancy.

Plans are ‘fiendishly complex’

But pensions expert Steve Webb warned linking state pension support to someone’s health and lifestyles was “deeply troubling” and that life expectancy did not always reflect a person’s medical history.

Report author Tom Smith, director of economic policy at the TBI, said: “Britain’s state pension system was built for a different era. We can’t keep pouring money into a system that is increasingly unaffordable.

“Pension spending must be contained, and that means the triple lock cannot continue after the next election.

“Ending it will require political leadership from all parties – but that should only be the first step. Real reform must also build a better system: one that is fairer, more flexible, and designed for how people live today.”

Webb, a former pensions minister and partner at pension consultants LCP, said: “The idea of linking state pension payments to individual health records and individual life expectancy is deeply troubling.

“Leaving aside issues of confidentiality and data quality, it is very hard to make a precise leap from health records to life expectancy.

“The report says that they would not want to pay higher pensions to those who had poorer health because of lifestyle choices such as smoking, but it is very hard to see how they would exclude the impact of smoking on someone’s overall health.”

He said the current state pension system was relatively simple and warned it would be a “huge backward step to replace it with something fiendishly complex and highly intrusive, and which would take many decades to implement in full”.

‘People have no idea how long they’ll live’

Tom Selby, director of public policy at AJ Bell, said: “Being able to access your state pension earlier at a reduced rate could benefit some, particularly those with lower life expectancy.

“But most people simply have no idea how long they might live for and if large numbers of people go down that road, it could exacerbate retirement income challenges later in life.

“Moreover, moving from a single-tier benefit to a flexible benefit would create fiendish complexity, both for people engaging with the new system and in transitioning from the current framework.

“The report is absolutely right that the triple lock will need to be scrapped at some point, but it also opens up a debate on whether the state pension itself should be a stable foundation or a more flexible income people can tailor to their needs.”

Jonathan Cribb, deputy director and head of retirement, savings and ageing at the IFS, said: “Any increase in flexibility here needs to be balanced against the increasing complexity of the system – and indeed this move would be in the opposite direction to reforms that have simplified the state pension system in recent decades.”

A DWP spokesperson said: “Supporting pensioners is a priority and our commitment to the triple lock for the rest of this Parliament means millions of pensioners will see their yearly state pension rise by up to £2,100.

“The Pensions Commission is already examining how we can ensure secure retirements for tomorrow’s pensioners and for those that have not reached state pension age but need extra support, a range of options such as universal credit and other means-tested and disability-related benefits are available.”