The Pensions Triple Lock – is support for pensioners all that it seems?

One of the iconic policies of the coalition government was the pensions ‘triple lock’. This guarantees an increase in pension incomes of the highest of inflationary increases to prices, wages or a minimum of 2.5%. With inflation extremely low, this has meant 2.5% annual increases to state pensions since the introduction in 2011. In contrast to the pay stagnation and the freeze in working age benefits, this policy has ensured pensioners’ incomes have risen out of proportion to the working age.

The viability of this policy has recently been called into question, not least by the former pensions minister Ros Altman, the Institute for Fiscal Studies, and others. The costs of pensions is a great one and is increasing all the time. This is particularly stark in comparison to other state benefit spending. From 2010, the year before the triple lock was introduced, to 2014 welfare spending increased by £28 billion. Of this, £21 billion was in increases to pensions, with benefits paid out to families and the unemployed decreasing in the same period. Of all spending on benefits, pensions make up 41.5% in 2014. Compare this to the less than 2% that is spent on unemployment benefits and the proportional focus on pensioners becomes clear.

Pensioner protection – it’s not just pensions

It has become a truism in the understanding of benefits, that the welfare reforms introduced since 2010 have been to the disadvantage of working age. Most of the more sensational changes to the benefit system have been focussed on the working age, with pensioners excluded. The £26,000 per year benefit cap does not affect pensioners at all. The so-called bedroom tax exempts pensioners, who are also protected from any cuts to council tax support that local councils pass on to residents.

These high profile cuts, while of dramatic impact to those affected, are not the most significant cost saving measures to the government. The biggest overall impact is the freeze on working age benefits. Rates of benefit for jobseeker’s allowance, income support, housing benefit and the like are all frozen until 2020, saving the government over £4 billion. Saving something like £1 per week from all benefit claims though, makes a massive difference to the treasury – one that individual claimants are unlikely to make a big fuss over. While inflation is low, the lack of an annual increase in personal benefits seems of minor importance compared to the thousands of pounds that some people are losing through the benefit cap. A four-year freeze however, especially if inflation starts to rise again, will start to hit home.

It is this that the pensions triple lock protects against. And it’s not just state pensions that are protected. The guarantee element of pension credit is triple locked too. In 2016, while the over 25 rate of jobseeker’s allowance was frozen at £73.10 per week, the basic state pension increased by £3.35 to £119.30. The minimum guarantee for pension credit (the pensioner equivalent to income support) went up by £4.40 to £155.60 per week.

These are substantial protections for pensioners that the government has promised to protect until 2020.

It’s not all gravy

The triple lock is not a universal guarantee of increased incomes for pensioners however, despite government assurances. Two primary groups of pensioners, who may have low incomes, are not protected in the same way – pensioners who receive savings credit and pensioners who receive financial assistance towards their care.

Savings credit

Savings credit is a government scheme that provides a small extra income to those who have made some contribution towards their retirement. It can only be claimed by over 65 year olds who have a private pension, who work or who have more than £10,000 in savings. This scheme is being abolished and can no longer be newly claimed after April 2016. For those already receiving it, it is being eroded away by the increases to the basic pension. Those receiving the heralded £3.35 weekly increase to their state pension will see their savings credit reduced by £1.32 as a direct consequence.

In this way one government pension scheme directly reduces another, leaving them better off by £70 per year less than their contemporaries who don’t qualify for savings credit. They are substantially less well-off than the promised 2.5% increase to their incomes.

Financial assistance towards care

The second group of pensioners, this time who may see no direct improvement in their circumstances, are those who receive local authority assistance to the cost of their care. When establishing the amounts that a person has to pay towards their care, local authorities use a formula devised by the government. Simply, this formula sets out a minimum amount of income that a person in care needs to meet their personal costs and then requires them to pay any money they have over this amount towards their care. The local authority then pays any costs left over that the person is not able to meet.

The amount of their income that the person is allowed to keep did not increase in 2016. This means that the full amount of the pension increase from the triple lock merely reduces the local authority’s contribution to the care costs. The pensioner receives no benefit.

What does the future hold?

Pensioners have been well served by several successive governments, but this protection is not equal and does not always affect people in the way they need it. With the ever-increasing costs of funding state pensions, it is likely that we will see further changes in the medium term. We are already seeing policy changes that reduce the government’s spending on pensioners.

These are topics for another day, but the sudden rise in women’s pension age to 65 by November 2018, rather than the originally intended April 2020 affects many women. Find out more from the Women Against State Pension Inequality.

The local housing allowance cap on housing benefit for people renting from social landlords has the potential to dramatically cut benefits for low income pensioners who have spare rooms in their properties. More on this at a later date.

Finally, the introduction of the new state pension will see fewer pensioners on pension credit altogether. This will have a knock on effect of reducing automatic entitlements to other benefits, most notably housing benefit.

Further changes surely lie ahead. Whether that is eroding the triple lock from more people or removing it altogether, we shall see. Either way, the coalition’s principle of protecting pensioners at all costs has been lost and will not return any time soon.