U-turn shows pitfalls of unpicking pensions triple-lock

A pensions timebomb is ticking on the Isle of Man and the self-governing island off the UK’s west coast came very close to defusing it last week.

Like the UK, the island protects state pensions with the triple lock, which automatically increases the state pension each year by the maximum of three measures: price inflation, average earnings or 2.5%.

The Isle of Man’s government wanted to scrap the triple lock for some pensioners in its budget last week.

But ministers were forced to back down following a backlash from members of the island’s parliament, who argued the change was “unfair” on pensioners and was being rushed through without a proper debate.

The U-turn is a cautionary tale for critics of the triple lock in the UK.

It underlines the political difficulty of watering down the income of pensioners who tend to vote in greater numbers than younger age groups at elections.

One former UK Treasury adviser told the BBC: “It’s politically too difficult to come up with a pension policy that does not involve committing to the triple lock. It’s such a vulnerability in an election campaign.”

The triple lock was introduced by David Cameron’s 2010 coalition government and has proved a reliable way of wooing the grey vote for every administration since.

But it has also become steadily more expensive, as the population ages.

Between 2022 and 2032, the number of pensioners in the UK is projected to increase by 13.8%, according to the ONS.

Meanwhile the fertility rate is declining, suggesting there could be fewer UK-born people entering the workforce and paying taxes to cover welfare costs, including pensions.

The government’s spending watchdog, the Office for Budget Responsibility, said spending on pensioners is forecast to rise from £141bn this year to £182bn by 2030.

In the Irish Sea, the cost pressures of keeping the triple lock are similarly intimidating politicians on the Isle of Man.

With a population of about 84,000, and a declining birth rate, the Isle of Man has a higher proportion of over 65s than the UK as a whole – 22.5% compared with 19% – and forecasts show the number of retirees on the island is expected to grow.

A report last year suggested, without reform, the fund that pays out the state pension could run out by 2047.

In the UK, the population trends are only going in the same direction, and they look daunting for whichever party wins the next general election, due in 2029 at the latest.

“The politics here are a nightmare,” said David Sinclair, chief executive of the International Longevity Centre – UK. “The problem is that none of the alternatives to removing the triple lock are going to be popular.”

A return to some model of earnings link is favoured by many economists.

Mr Sinclair said to keep the triple lock, government may have to take on more debt, increase the pension age, raise taxes, or potentially all of the above.

“For government it’s a lose, lose, lose scenario,” Mr Sinclair said.

He said the Labour government “will be terrified about even suggesting a cut to the triple lock” after the outcry over its decision to withdraw the winter fuel allowance from all but poor pensioners.

The government is raising the state pension by 4.1% this April, on a par with average earnings.

A government spokesperson said its commitment to the triple lock was “unwavering” and meant “millions will see their state pension rise by up to £1,900 over this parliament”.

In the Conservative camp, there have been hints of a shift in attitude to pensions.

Speaking on LBC, Tory leader Kemi Badenoch said the Conservatives were “going to look at means-testing” benefits, in response to a question about the state pension. Her party later insisted she was not referring to the triple lock specifically.

Also, the shadow chancellor, Mel Stride, has said the triple lock was unsustainable in “the very, very long term”.

A Conservative source said Stride’s comments had been taken out of context and the party was committed to the triple lock.

Neither Reform UK nor the Greens mentioned the triple lock in their election manifestos last year, while the Liberal Democrats supported its continuation.

That was no surprise given they mooted the idea in their 2010 manifesto, albeit without the triple lock tag.

Two sources close to the 2010 coalition talks said what became the triple lock was a minor detail in the Tory-Lib Dem agreement, with one saying the Treasury estimated it would cost £50m over a five-year period.

“Clearly the triple lock will stop at some point,” Steve Webb, the former Liberal Democrat MP and pensions minister who implemented the policy, told the BBC. “It was never intended to be permanent.”

Webb said it was a tool used to “undo 30 years of damage” to pensioner living standards, but added “there will come a point when it’s done its job”.

Such is the sensitivity of the issue, few current MPs or anyone actively involved in Westminster politics are willing to talk openly about when that time might come.

One MP, who did not wish to be named, said the triple lock would not be dropped anytime soon, even though there were convincing arguments for doing so.

For now, there’s a stubborn silence and talk of tossing out the triple lock remains taboo among this generation of political leaders.

Given the backlash against the watering down of the triple lock on the Isle of Man, the MPs of the future may view what’s happening on the island with some trepidation.