This weekend the Prime Minister pledged that a Conservative government would keep the ‘triple lock' for increases to the basic state pension for the length of the next parliament. But what would David Cameron's promise actually mean for pensioners?
What effect has the triple lock had?
The triple lock, which guarantees an annual increase in line with inflation as measured by the Consumer Prices Index (CPI), average earnings or 2.5%, whichever is highest, was introduced in the 2010 budget. The government also restored the statutory link between the basic state pension and average earnings, which had been broken in 1980, and reintroduced in the Pensions Act 2007.
The triple lock has seen the basic state pension for a single person increase from £95.25 a week to in 2010/2011 to £113.10 in 2014/15. Pension consultant Towers Watson estimates that this is £8.20 higher than it would have been if the benefit had been increased in line with average earnings.
The relatively high level of inflation experienced over the last five years means, however, that the basic state pension would have been slightly higher if it had continued to be uprated in line with the retail prices index (RPI).
Had increases been linked to RPI, as they were at the time of the much-derided 75p annual increase in 1999, the basic state pension for a single person would now be £114.20.
What would be the future cost of the triple lock?
The Office for Budget Responsibility (OBR) has forecast that average earnings will continue to outstrip CPI inflation and remain above 2.5% in its detailed economic forecast up to April 2019. This means there will be no additional cost to keeping the triple lock in place of the next five years instead of uprating in line with earnings, if the OBR forecast proves accurate.
But Towers Watson consultant David Robbins said Cameron's promise could still have an effect.
He said: "The significance of the Prime Minister's pledge may be that: (a) there would be a cost if the OBR turns out to be wrong about economic conditions in the next parliament; (b) it would prevent a government he led from changing the law and then awarding increases below earnings growth before 2020; and (c) it creates another precedent, potentially making it harder for future governments to abandon the triple lock."
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