The Tony Blair Institute (TBI), the think-tank set up by the former prime minister, has a plan for our pensions. It proposes scrapping the the triple lock – the commitment to increase the state pension by 2.5 per cent, average wage growth, or CPI inflation, whichever is higher – by 2030 and then replacing the current setup entirely with a more flexible “Lifespan Fund”.
The fund, TBI says, would see contributions built up from work, caring and study to provide 20 years of funding – some of which could be accessed in times of financial trouble such as unemployment, retraining or amidst caring responsibilities.
While this plan is independent of the government, it does raise an important question about the sustainability of our pension system and if it is still fit for purpose.So, should the state pension be replaced? Our experts – Kwasi Kwarteng, Callum Mason, Ros Altmann and Emily Braeger – share their perspectives.
Kwasi Kwarteng: Scrap the triple lock and means-test it
The state pension has been with us since 1909. The retirement age then proposed was 70. It was originally means-tested, which meant that richer pensioners received nothing. It was a safety net.
Today, the situation is unsustainable. The triple lock, introduced in 2010, is in the firing line. The main parties do not want to touch it, afraid that if they did so, they would lose a powerful voting block.
Yet it is clear that the triple lock would need to be changed to restrain the growth in public expenditure on the state pension. In addition some degree of means-testing should be introduced, as was originally the case in 1909.
In Australia the state pension equivalent is means-tested. Such testing involves an assessment of both the income and assets of each individual.
About 40 per cent of pension age Australians receive the full amount. Roughly 25 per cent receive a partial payment. This leaves around 35 per cent who, because their wealth or income exceed the threshold, receive nothing.
Such a targeted approach is necessary as our population continues to age. It would also reduce the need to keep increasing the pension age to reduce public spending.
Kwasi Kwarteng is a Conservative former chancellor
Callum Mason: The solution needs to be simple – this isn’t
There’s no denying that we need a conversation about the level of the state pension, and the way we fund it over the next few years – but the key problem with the TBI’s proposal is its complexity.
Policymakers spent years trying to simplify the old state pension – which involved retirees getting an basic rate plus extra add-ons – into a flat rate new state pension. Why would we now pivot to a new and complex system once again?
This proposal suggests scrapping a single state pension age and allowing some people to bring forward some of their entitlement. This immediately rings alarm bells for me. Will people understand the new rules, and will they be able to navigate them without deep reading?
The best government financial policies are always straightforward and don’t require huge engagement from the public. Take pension auto-enrolment for example – it’s massively increased retirement saving, but does so without people even really noticing.
You only need to look to our ISA system – where there are multiple different products, with different thresholds and rules and which very few laypeople fully could easily explain – to see what happens when politicians try to be too clever with their personal finance policy.
Callum Mason is The i Paper’s deputy money editor
Ros Altmann: Your pension age should be tailored to your health
The state pension certainly needs reform. It has become increasingly inequitable.
Raising the state pension age disadvantages the poorest and least healthy people who have little private pensions or savings. Even if they have a full 35-year national insurance record, they cannot get a penny of state pension until the ever-rising starting age.
The least-advantaged groups only stay healthy to their early-fifties, while others are fine into their seventies. Denying a state pension to more and more people, who are not fit to work, is wrong.
The triple lock makes little sense too – the 2.5 per cent element just adds long-term cost without economic justification and it does not protect the oldest or poorest pensioners.
An earnings-linked, more flexible state pension sounds sensible but my preference is a flat-rate amount determined by years of national insurance contributions, via work or caring, topped up by auto-enrolment. The private fund built up from worker/employer contributions could be drawn more flexibly, perhaps via a state-provided annuity based on health.
Baroness Ros Altmann is a Tory peer and pensions expert
Emily Braeger: It will harm the poorest most
I’m 25, which is exactly why this makes me nervous. The state pension might not be exciting, but it’s one of the only things that feels solid. You know it’s there and that matters.
This proposal sounds flexible, but also complicated. And usually when something gets more complicated, it’s easier for people to lose out, especially if they’re already struggling. Like, sure, being able to dip into your pension earlier sounds helpful, but what happens when people have no choice but to use it?
If you’re on a low income, dealing with unemployment or caring responsibilities, you’re far more likely to draw it down – and then end up with less later. That doesn’t feel fair, it feels like shifting risk onto the people with the least cushion.
Scrapping the triple lock just feels like another quiet downgrade. We’re already dealing with expensive housing, insecure work, all of that, so what’s left that actually is guaranteed? I get that reform is needed and I know that we are likely to lose the triple lock. But this feels less like fixing the system and more like making it easier for the state to step back – and for us to carry more of the uncertainty ourselves.
Emily Braeger is The i Paper’s money reporter