30 April 2017

'Middle way on the triple lock' proposed as part of 3-point Royal London 'pensions manifesto'

4 min read

Steve Webb
Royal London



utual insurer Royal London has today (00:01 Sunday 30th April) set out a three point plan for the key pension priorities of an incoming government.

The three points are:

A middle way on the triple lock

In response to concerns about the cost of the triple lock and the suggestion that the policy be abolished outright because of cost pressures, Royal London proposes a middle way which would control costs and focus more generous annual increases on the pensioners who need it most.

Royal London proposes that the government retains the triple lock for all pensioners on the old ‘basic state pension’ (those who retired before 6th April 2016) but reverts to earnings indexation for those on the new state pension; the change saves around £500m per year by 2021/22, rising to nearly £3 bn per year by 2027/28, ensuring long-term sustainability; and because newly retired pensioners are on average £100 per week better off than those aged over 75, this policy increasingly focuses money on the older, poorer group; it would also deal with an anomaly whereby the triple lock is of more value to newly-retired pensioners than to older pensioners. This anomaly arises because the triple lock applies only to the old basic state pension (currently £122.30 per week) for those who retired before April 2016 but to the full new state pension (currently £159.55) for those on the new system.

Getting the self-employed into pensions

Royal London proposes extending automatic enrolment to more than two million self-employed people who file an annual tax-return; pension coverage among the self-employed is now down to around 1 in 7 and urgent action is needed to improve coverage; the self-employed would be ‘nudged’ into pension saving via their tax return but with an opportunity to opt out.

Getting employees to save realistic amounts through annual step-ups in contributions

Royal London calls on the government to ensure that more than ten million workers covered by ‘automatic enrolment’ into workplace pensions progressively contribute more than the 8% legal minimum contribution which will be in place in April 2019; this would be done by linking contribution increases to pay rises, with an annual step up in pension contributions being applied automatically unless workers opt out; the process could continue until contribution rates were nearer the 12-15% level needed for a decent retirement for someone on average earnings.

Full details of the proposals are contained in Royal London policy paper 13, ‘A three-point manifesto for pensions’, available at www.royallondon.com/policy-papers

Commenting on the proposals, Royal London Director of Policy 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. 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.

‘To complement the state pension, we need to see high levels of saving into workplace pensions and more people saving into a pension. We therefore advocate an annual step up of contributions by the employed population, with contribution increases timed to coincide with pay rises. This is likely to be the least painful way of getting people to save more. We also want to see a form of automatic enrolment applied to the self-employed, given the dramatic increase in pension membership when a similar approach was taken for employed earners’.

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For further information please contact:

Royal London Press Office

About Royal London:

Royal London is the largest mutual life, pensions and investment company in the UK, with funds under management of £117 billion, 8.8 million policies in force and 3,745 employees. Figures quoted are as at 30 June 2018.