Andy Burnham has been told the triple lock won’t be saved with small changes (Image: Getty)
As new Prime Minister Andy Burnham faces increasing pressure on his first Budget with Chancellor John Healey, financial experts have warned that cutting at the fringes by scrapping redundant DWP benefits is not going to be enough to save the prized triple lock.
Many have recently called for the increasingly expensive state pension triple lock system to be abolished. David Blair, The Telegraph‘s chief foreign affairs commentator, said he believes the triple lock should be axed to give more cash to the Ministry of Defence.
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He said: “In fact, real wages have grown by less than forecast, meaning that the additional cost of the triple lock reached £12bn this year and will climb to £15.5bn – three times the predicted sum – by 2029, according to the Office for Budget Responsibility (OBR).”
Currently, the state pension triple lock, introduced by the Conservative-Lib Dem coalition in 2011, automatically increases state pension payments each year by one of three metrics: wage growth, inflation, or a flat 2.5%, whichever is highest.
It comes after the OECD warned that the triple lock has created “sharp and unpredictable” increases in pension spending and is “unusually generous” compared with other countries.
This month, the Express reported on calls from state pensioners themselves to axe small and largely redundant state pension payments such as the £10 Christmas bonus and the 25p uplift for older pensioners.
But the savings from removing these will still not be enough to pay for the triple lock, financial experts have warned, even though there is an argument that those payments should be removed.
Dat Ngo, Certified Public Accountant at Vetted Prop Firms, said: “I believe you can justify eliminating the £10 Christmas Bonus. It should be justified as reducing the complexity in the pension system versus justifying it as a way to reduce the costs associated with increasing pensions through the triple lock.
“Since 1972, the Christmas bonus payment amount has remained at the same level; therefore, its current impact upon pensioners is minuscule. With an annual expenditure of approximately £272 million per annum, on a benefit whose primary function is now symbolic, one may reasonably ask if this money cannot be better spent.
“A similar rationale can be applied to the 25p increase to state pension (weekly) for those aged 80+. Maintaining a multitude of extremely minor payments that are unchanged from many years ago creates additional complexities while offering no significant monetary assistance.
“Rather than using these funds to maintain symbolic payments, I would prefer to consolidate them back into the base state pension. Alternatively, I would also like to use these funds to assist in paying part of the ongoing costs of continuing to fund the triple lock. In terms of overall magnitude, however, the cost of funding the triple lock is far greater than removing these payments. From a public finance perspective, removing complex outdated benefits is sensible. This will, however, create a broader discussion concerning the sustainability of funding for the State Pension.”
Rakhee Wood, Independent Financial Adviser, Butterfly Financial Planning, added: “There’s definitely an argument for scrapping the £10 Christmas Bonus because its value has been frozen for so long that it now makes very little difference to an individual pensioner’s finances.
“If the Government wants to spend money supporting retirement incomes, maintaining the triple lock has a much bigger effect because it influences the State Pension people receive every week of the year. But I wouldn’t present scrapping the bonus as a way of funding the triple lock.
“The triple lock determines how the State Pension is uprated annually and the sums involved are far greater, so removing a relatively small payment isn’t going to suddenly make that commitment affordable.
“There’s also an important complication because the Christmas Bonus isn’t exclusively a pensioner benefit. It’s paid to people receiving various qualifying benefits, so abolishing it altogether would affect some working-age disabled people and carers too. A cleaner argument would be that the Government should review whether these very old, frozen payments still achieve anything useful and decide whether that money could be used more effectively within the benefits system.”