According to Financial Times News, the UK’s state pension triple lock has become significantly more expensive than originally projected when introduced in 2010 by the coalition government. The Office for Budget Responsibility now estimates the policy costs around £15.5bn more per year than if pensions had simply been linked to average earnings growth since the early 2010s. Originally designed to increase pensions by the highest of 2.5%, inflation, or average earnings growth, the mechanism has proven particularly costly during periods of economic volatility including Brexit, the pandemic, and recent energy price shocks. Every government since 2010 has maintained the popular policy despite growing fiscal pressures, and both major parties have recently recommitted to keeping it through this parliament.
How the triple lock backfired
Here’s the thing about the triple lock – it sounded like a political winner when times were stable. But the designers basically didn’t account for what happens when you get multiple economic shocks in quick succession. The policy isn’t just about keeping pensions in line with living standards – it actively ratchets them up relative to average earnings during volatile periods.
Think about it this way: when prices spike (like during the energy crisis), pensions jump with inflation. Then when earnings catch up later, the higher pension base becomes the new normal. Each crisis permanently lifts the floor. It’s like a one-way escalator that only goes up, regardless of what’s happening in the broader economy.
The growing fiscal pressure
So we’re looking at £15.5bn in additional annual costs that nobody budgeted for. That’s real money, especially when you consider the other pressures on UK public finances. We’ve got rising healthcare costs from an aging population, increased defense spending commitments, and elevated debt interest payments. Something has to give.
Politicians are terrified of touching pensions because older voters turn out and they remember what happened with the “dementia tax” debacle. But the longer this continues, the more we’re baking in structural deficits that will require even more painful adjustments later. It’s the classic political problem – short-term popularity versus long-term sustainability.
A better way forward
The article proposes what seems like a much smarter approach: a “smoothed earnings link” similar to Australia’s system. Basically, you set a target for what percentage of average earnings the state pension should represent (currently about 30%). In normal years, pensions rise with earnings. During downturns when earnings stagnate, they rise with inflation to protect pensioners. But crucially, the system automatically returns to the target level as earnings recover.
This approach would still protect pensioners from inflation during tough economic times while preventing that permanent ratcheting effect. It’s more predictable for budget planners and doesn’t create these unexpected fiscal time bombs. The government could even announce the change now for implementation after the next election to give people time to adjust.
Why reform can’t wait
Look, I get why politicians are nervous. Nobody wants to be the one who “cut pensions.” But here’s the reality: the current system is fundamentally unsustainable. We’re facing multiple major fiscal challenges simultaneously, and continuing with a policy that unpredictably adds billions to public spending every time there’s economic turbulence just doesn’t make sense.
The author makes a compelling case that the government should use this parliament to signal a change coming after the next election. It would show they’re serious about responsible long-term fiscal management. Because let’s be honest – the longer we kick this can down the road, the harder the eventual adjustment will be. And we’ve already delayed long enough.
