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| (Image: The Guardian) |
I was 18 years old when I opened a bank account with the
Royal Bank of Scotland. It was my first experience of aggressive salesmanship.
I thought all I was doing was taking in some pieces of
identification, confirming some information and opening a bank account. But no.
I had a half-hour appointment with an advisor who was keen to offer me pretty
much every other product the bank had available. Inevitably the conversation
came round to the subject of pensions.
He asked me whether I had thought about pensions. I’d just
turned 18 years old a few days before and told him that I really hadn’t, they
were not something I was particularly interested in and I would have plenty of
time to think about it in the future. But he didn’t accept that as an answer.
He kept pressing. He didn’t succeed in persuading me to do anything, but there
is a reason I bring this up now.
During the five minutes or so in which he basically tried to
bully me into opening a pension, he said something that has stayed with me:
“When you reach retirement age, there will no longer be a state
pension.”
That was all the way back in 1995. I didn’t treat what he
said as a prediction because it wasn’t – it was a sales tactic. But it sticks
with me not just because it was unnecessary fearmongering, but because it made
an impression for another reason. Immediately it became clear to me that
pensions are only good if they are sustainable, and they are not fair if
younger workers are paying more into a system that will be gone before they
retire.
Liberal Democrats should approach pensions through our
commitment to freedom, dignity and fairness. Nobody should spend their retirement
choosing between heating and eating. Equally, promises made to today’s
pensioners must be affordable for the people whose contributions support
them—and credible for those who will retire tomorrow. Young people who are the
same age now as I was back in 1995 shouldn’t have to worry about whether there
will be provision for them at the end of a working life they may not yet have
started.
Andy Burnham’s conference proposal deserves to be considered
in that spirit. From April 2030, he proposes retaining annual increases of at
least inflation or 2.5%, while maintaining the state pension’s relationship
with earnings over time. That changes how the earnings protection operates; it
does not abandon it.
This is not as radical as some are suggesting. Neither is it
scrapping the triple lock. And it certainly isn’t stealing from pensioners.
To be precise, it replaces the existing annual formula with
a different arrangement retaining three protections. This deserves honest
debate, but describing it as theft obscures the question we should be asking:
what combination of pensions, income support and care best secures dignity in
later life?
The intemperate reactions we have seen from various quarters
haven’t helped the conversation. Yet this is a conversation that needs to be
had. The conversation also needs to be rational, informed and focused on
addressing need rather than political expediency.
The triple lock’s limitations
The triple lock was introduced in 2011, a Liberal Democrat
idea brought in by Steve Webb aimed at ensuring pensioners’ income did not fall
behind the rest of society. It increases the basic and new state pensions each
year by the highest of earnings growth, inflation or 2.5%. It helped repair the
erosion of the state pension’s value and provides protection that pensioners
understandably value.
However, it isn’t without weaknesses. A key problem is that
it achieves these objectives through a permanent ratchet, rather than an agreed
destination for pension adequacy. It is also a blunt instrument for tackling
poverty. A pensioner with substantial investment income and a comfortable
occupational pension receives the same percentage increase in their state
pension as someone wholly dependent on it.
That does not necessarily make a broadly available state
pension undesirable. Such provision offers simplicity, security and public
legitimacy. Nor should we overlook how much more a pension increase matters to
someone with little other income. But when the leader of the Liberal Democrats
condemns the Prime Minister’s proposals around the triple lock as stealing from
“the pockets of our poorest pensioners” it raises questions about
whether he genuinely understands how the triple lock works and whether there
may be better means of actively supporting “our poorest pensioners”.
An across-the-board uprating formula cannot and does not distinguish between
comfortable retirement and severe hardship.
There is little evidence that the triple lock itself has had a significant
impact on reducing pension poverty. There has been no sustained fall in
pensioner poverty since its introduction in 2011, and the IFS suggests that,
while relative pensioner poverty fell from 25% to 13% between 2002-3 and
2011-12, it increased to 16% in 2022-3. What has helped, and was certainly the
key factor behind the poverty reduction in the decade preceding the triple
lock’s introduction, is something else entirely – Pension Credit.
Pension Credit addresses a different task: topping up the incomes
of eligible pensioners. Because state pension income counts in its calculation,
an increase in the state pension can be offset by a reduction in Guarantee
Credit if the guaranteed minimum is unchanged. The poorest pensioners therefore
need more than a promise about annual state pension increases. They need an
adequate total income, accessible benefits and help with the costs that drive
hardship.
Fairness between generations
The state pension is largely financed from current public
revenues. Its affordability consequently depends on the economy and contribution
base supporting it. It is not, contrary to popular belief, a personal
investment account accumulated by each recipient.
The triple lock creates an asymmetry. When inflation exceeds
earnings growth, pensioners receive protection against rising prices. When
wages subsequently recover, the existing formula awards the full earnings
increase on top of that earlier protection. Repeated fluctuations can therefore
push pensions progressively higher relative to wages.
This is something recognised by the Resolution Foundation, a
think-tank focused on improving living standards for those on low to moderate
incomes. The Foundation argues that “pensioners have seen three times as
much living standards growth as non-pensioners over the last two decades, a
typical pensioner household now has the same level of income as the typical
working-age household, and pensioners are less likely to be in poverty than the
rest of the population. There is not a strong case for continuing to increase
state support for pensioners faster than the wages of typical workers.”
Protecting pensioners during an inflation shock is
reasonable. Permanently increasing their share of national earnings because of
the sequence of economic shocks is harder to justify.
The additional spending has an opportunity cost. It must be
supported by taxation, borrowing or choices elsewhere in public spending. Those
choices matter to younger people trying to afford housing, raise children and
save for their own retirement – all at a time when intergenerational inequality
is widening.
A Liberal Democrat approach should protect hardship at every
age and ask more of those with the greatest means. It should also recognise
that today’s younger workers are tomorrow’s pensioners. They need a dependable
state pension.
It is understandable that many Liberal Democrats feel proud
of the triple lock as one of the great achievements of the coalition years.
However, while it did achieve much of what it set out to do, in the words of
the Resolution Foundation “it was always a poorly designed, unfair,
arbitrary ratchet that we could never afford”. If we’re being realistic,
if this had been a Conservative rather than Lib Dem idea, would our leadership
still be passionately defending it 15 years later despite evidence of its
weaknesses?
We need to be honest about the triple lock. Sadly, among the
largely positive reactions to the Prime Minister’s speech there has been a fair
amount of disingenuousness from those defending the triple lock. Ed Davey, on
BBC 4 Today, argued that the triple lock needs to be retained to “help
millennials”, a claim that Tom Gordon MP said “is at best for the
birds, and at worst downright insulting.” If we are determined to keep the
triple lock, then we need to find compelling reasons to do so. Pretending
the triple lock is safeguarding younger people is either unforgivably dishonest
or economically illiterate.
Why the triple lock is unsustainable
Britain is not imminently about to become incapable of
paying pensions. The problem is that the present formula commits us to an
increasingly expensive benefit that in the longer-term will become inviable.
The State Pension simply cannot continue to rise forever by more than the
earnings of a typical worker.
Population ageing creates spending pressure independently of
the triple lock. The number of people aged 16-64 for every person aged
65+ projected to fall from 3.3 to 1.9 between 2025 and 2075. The Office for
Budget Responsibility’s July 2025 report described long-term projections in
which state pension spending will reach 7.7% of GDP by the early 2070s,
approximately half as much again as its current share. These are conditional
projections, not inevitable outcomes, but they demonstrate the scale of the
challenge.
There is nothing inherently wrong with choosing to spend
more on retirement. But that choice should be deliberate and funded. An
arbitrary annual minimum of 2.5%, combined with whichever economic indicator
happens to rise fastest, is an inadequate substitute for a long-term
settlement. The Prime Minister’s proposal is mere tinkering and doesn’t even
begin to deal with the bigger questions.
Burnham’s proposal addresses the permanent ratchet (to a
degree) while retaining price protection and an earnings relationship. The
Institute for Fiscal Studies welcomes that change, but also argues that the
surviving 2.5% floor remains potentially costly and that reform alone is
insufficient to fund universal social care. The sustainability problem remains.
Liberal Democrats should scrutinise these weaknesses. We
should demand credible care funding and a clear pension formula. But rather
than simply doubling down and defending the status quo, as if the triple lock
is sacrosanct, we should seek to promote an alternative vision for the future
of pensions in which everyone can count on dignity and financial security in
retirement. That means a stable, predictable system that protects purchasing
power, shares rising prosperity and remains sustainable over the long term.
Above all, it must be equitable – providing stronger support for those with the
least, recognising lives spent in low-paid work or unpaid care and sharing the
costs fairly according to ability to pay, both within and between generations.
What Britain can learn from Europe
On social media, many accounts supporting retention of the
triple lock have circulated misleading memes suggesting that the UK has the
lowest highest pension rate in Western Europe, yet is the only one to be
“unsustainable”. Such accounts also tend to characterise the Prime
Minister’s proposal as a “pensions grab”.
Such simplistic arguments contain a grain of truth, but the
comparison is not a like-for-like one. I think it is helpful to look at Europe,
not because all of their pension schemes are sustainable (they aren’t) but
because there are viable alternatives to doing things in the same way and
merely tinkering a bit around the edges.
Iceland, the Netherlands and Denmark offer particularly
useful lessons because they combine public retirement provision with extensive
funded pensions. Their systems spread responsibility across the state,
employers and individuals.
In Iceland, mandatory pension saving sits alongside targeted
public provision. The OECD reports mandatory funded pension contributions of
15.5% of salary, comprising 4% from employees and 11.5% from employers. This
builds substantial retirement resources through working life, reducing reliance
on the public pension alone.
The Netherlands combines its basic state pension with
extensive occupational provision. Its pension system is undergoing a transition
towards defined contribution arrangements, illustrating that even mature funded
systems must adapt how they allocate investment and longevity risks.
Denmark combines a basic public pension, means-tested
supplements, a funded supplementary pension scheme and occupational pensions
negotiated through collective agreements. Its public basic and safety-net
benefits are linked to wages, helping preserve their relative value.
Retirement-age links to longevity also form part of its approach to
sustainability.
These arrangements offer principles Britain can adopt,
rather than ready-made systems we can import. Wider pension coverage, stronger
employer contributions, efficient collective provision and dependable minimum
incomes are all relevant.
But funded pensions take decades to mature. Increasing
saving today does not pay today’s state pension bill. Higher contributions also
have immediate consequences for wages, household budgets and employers.
Investment returns are uncertain, while people with low pay
or interrupted careers cannot accumulate adequate pensions simply by being
instructed to save more. Funded provision therefore needs public support and
strong governance. It complements an adequate state pension; it cannot and
should not replace the safety net.
What would best help the poorest pensioners?
This is the most important question, and one our leadership
should be asking if it is serious about addressing need rather than using pour
“poorest pensioners” as a convenient stick with which to beat the
Prime Minister. The starting point should be a guaranteed minimum retirement
income, assessed against actual living costs and reviewed regularly. That
guarantee must allow for the additional pressures facing renters, disabled
people and those living alone.
Pension Credit provides an existing foundation, but its
delivery is inadequate. DWP estimates for the financial year ending 2024
indicate that up to 910,000 eligible families did not claim it, leaving up to
£2.5 billion unclaimed. An entitlement that people cannot navigate or do not
know exists fails its purpose.
A solution to this could be government agencies using
administrative data to identify likely eligibility and offer proactive
assistance. Alternatively, it may be time to move to a more fit-for-purpose
system.
If our objective is to tackle pensioner poverty, we should
design a system around that objective. The triple lock increases state pensions
without asking whether someone has enough to live on and without doing anything
to specifically help those Ed Davey describes as “the poorest
pensioners”. A fairer alternative would direct greater support
towards those with the smallest incomes and the greatest unavoidable costs.
Pension Credit has a purpose but is also problematic. It
should be turned into a guaranteed retirement income, one delivered
automatically wherever possible with straightforward assistance where further
information is needed. Its level should reflect an independently assessed
minimum living standard and be protected against both rising prices and falling
behind the prosperity of the wider population. Unlike the triple lock, this
would establish an explicit promise around minimum income.
A more radical option – and liberals should be radical –
would be a higher, broadly available state pension, with the additional
expenditure recovered progressively through taxation from pensioners with
substantial total incomes. This would reduce dependence on means-tested claims
while concentrating the net benefit on poorer pensioners. It would require
careful costing and a fair transition, but its principle is clear: provide a
dependable pension entitlement, then ask those who can afford it to contribute more.
Broad entitlement need not mean equal financial benefit regardless of means.
We should also challenge the assumption that a secure
retirement must depend so heavily on an uninterrupted record of paid
employment. A stronger residence-based pension entitlement, with appropriate
qualifying rules, could protect people whose working lives were disrupted by
illness, insecure employment or unpaid care. This would address gaps in
entitlement that the triple lock merely carries forward.
Fairness also requires recognising that the same income buys
very different living standards. A pensioner paying private rent may face
hardship on an income that allows a mortgage-free homeowner to live
comfortably. A retirement income guarantee should therefore be accompanied by adequate
housing support and additional payments for disability and unavoidable care
costs.
These proposals would be better tools than the triple lock
for helping the poorest because they address the reasons people lack an
adequate retirement income: insufficient entitlement, missing support or high
essential costs. Their success should be measured by how far they reduce
poverty and improve disposable incomes after housing and disability
costs.
The Liberal Democrat ambition should be a retirement
settlement in which security is guaranteed, additional needs are recognised and
contributions reflect ability to pay. Defending the triple lock is no
substitute for building a genuinely equitable arrangement.
A sustainable Liberal Democrat alternative
I would advocate a settlement with three connected elements.
Firstly, establish an adequate state pension and maintain
its relationship with earnings through a transparent, smoothed earnings link.
Protect purchasing power when inflation exceeds wage growth; once wages
recover, allow the earnings benchmark to catch up before awarding further
increases above inflation. This preserves security without permanently
compounding every temporary shock. The IFS has proposed such an approach, which
also removes the arbitrary 2.5% minimum.
Secondly, strengthen the guaranteed minimum retirement
income and make it much easier to receive. Any reform should include explicit
protection for the poorest. Housing and disability costs must be addressed
alongside ordinary living expenses.
Thirdly, improve funded pensions for future retirees. Extend
effective coverage to people poorly served by existing arrangements, including
self-employed people and those with several small jobs. Raise contributions
gradually where affordable, with greater employer participation and targeted
support for low earners and unpaid carers.
These ideas are merely suggestions designed to offer a broad
direction for reform rather than a detailed policy proposal. If anything, I am
simply attempting to start a conversation. My hope is that those within the
party with expertise in pensions, taxation and social security can develop a
credible alternative to the status quo: one that offers greater scope than the
triple lock to put Liberal Democrat principles of fairness into practice and
ensure that no-one is enslaved by poverty in retirement. That means protecting
the poorest, recognising different needs and circumstances, and sharing the
costs equitably within and between generations, while providing lasting
security in retirement. Efforts need to be focused and resources need to be
targeted.
The Liberal Democrat test should be whether people gain real
security and freedom. A sustainable pension protects future generations from
broken promises. An adequate income floor protects today’s poorest pensioners
from hardship. Properly funded care protects people from losing their
independence when their needs increase.
Those goals belong together. Our responsibility is to design
a system that achieves them.
