Labour ministers will 'have to consider alternative to triple lock' says expert
State pension payments went up 4.7 percent this year in line with the policy
The Government could soon have to consider an alternative to the triple lock policy. The policy ensures state pension payments increase each April in line with the highest of three figures: the rise in average earnings, the rate of inflation or 2.5 percent.
However, as the cost of this policy continues to rise, experts are warning that it may soon become unsustainable. Mark Pemberthy, benefits consulting leader at insurance advisory group Gallagher, has stated that the policy is "unaffordable over the long term".
He said: "When wages or inflation spike, the bill for the Government rises dramatically. With public finances already under strain, reform is needed soon to avoid placing an unfair burden on future generations."
Labour has pledged to maintain the triple lock for this Parliament, but officials could soon reveal plans for a replacement. Mr Pemberthy said: "The imminent Pension Commission will look at what is required to build a future-proof pensions system that is strong, fair and sustainable.
"We anticipate that this will recommend an alternative to the triple lock when it publishes its findings in 2027. We hope that this will have broad political consensus and be the foundation for a long term sustainable future pension strategy."
DWP documents indicate that the commission will examine "the long-term future of our pensions system". One area the group will examine is "the role of private pension provision and wider savings, building on the foundation of the state pension, in delivering financial security in retirement and supporting those approaching retirement".
The commission will be headed by Labour peer Baroness Jeannie Drake, Sir Ian Cheshire and Professor Nick Pearce.
Mr Pemberthy discussed some additional modifications the Government might examine to maintain state pension costs at manageable levels.
He explained: "Very simplistically, the affordability of the state pension is down to balancing the amount of money paid to pensioners with the amount of tax paid by the working population.
READ MORE: DWP benefit and state pension payment dates for October 2025"On the state pension side of the equation, the main things the Government can change are annual increases in the amount paid to pensioners and the age at which people start to receive their state pension.
"Both are actively being reviewed at the moment by the Pension Commission and the state pension age review respectively with recommendations expected in 2027."
Examining the opposite side regarding securing sufficient tax revenues to fund the state pension, there is the mounting challenge of an ageing population, with fewer employees to support each pensioner.
Mr Pemberthy explained: "The level of earnings and number of workers is directly impacted by economic growth. If the UK economy enjoys a period of sustained growth then this will go some way to help balance the equation.
"Income tax and National insurance are the biggest sources of revenue for HMRC and therefore if economic growth is not balancing the equation then increasing these rates is the most effective way for the government to raise more tax revenue.
"Other than higher growth leading to higher wages and more workers, all of the other options to keep pensions affordable are likely to be very unpopular – and this is probably the main reason why Governments are tempted to kick big decisions down the road in the hope that higher growth comes along and makes the overall situation look much better."