In December, the influential Institute for Fiscal Studies (IFS) proposed a reform of the state pension that replaces the triple lock with a mechanism based on earnings. The proposal looks sensible in many respects but does not tackle all the issues.
The triple lock mandates that the state pension rises each year in line with whichever is the highest between average annual earnings growth from May to July, inflation in the year to September or 2.5 per cent. The IFS argues that this is expensive and arbitrary, and calls for the government to set a target level for the new state pension, expressed as a share of median full-time earnings. The state pension would then be set at that level and increase in line with earnings growth over time, but also never increase by less than inflation.
In a nutshell, this means scrapping the 2.5 per cent element, and instead thinking of the state pension as a fixed percentage of average earnings. Tom Selby, director of public policy at AJ Bell, argues this could be a "much more coherent plan" as the triple lock "randomly ratchets up the value of the state pension depending on earnings growth and inflation at specific points in time”.