The state pension age may have to be increased to 74 if the triple lock is sustained, a leading think tank has warned.
The Institute for Fiscal Studies (IFS) said in a report that an ageing population will mean the country cannot meet its growing state pension bill, with the lock set to cost an extra £40bn by 2050.
It said that a “substantial” increase in the age people can start claiming their state pension will be required to maintain the pledge, which sees people’s state pensions rise by the highest of inflation, average earnings growth, or 2.5 per cent each year.
Without changes to the state pension age, which is currently 66 but is rising to 67 between 2026 and 2028, the IFS is concerned that the triple lock will cost taxpayers billions more and become unsustainable.
But it says that if the state pension age is increased significantly, it risks hitting poorer households – who rely on the payment for much of their retirement income – because they may have to work for longer.
The report said: “Increases in the state pension age required to keep spending on the state pension below a certain level of national income would have to be substantial.
“[Official] modelling shows that to keep public spending on the state pension below 6 per cent of nation income while retaining the triple lock, the state pension age would have to rise to 69 by 2049 and 74 by 2069.”
In April, the state pension went up by 4.1 per cent, making it worth £230.25 a week for the full, new flat-rate state pension and £176.45 a week for the full, old basic state pension. A rise of £472 a year and £363 a year respectively.
Chancellor Rachel Reeves has pledged to keep the triple lock until 2029, but the IFS said a double lock that instead linked increase in payments to wages or inflation was more sustainable.
Speaking to The i Paper earlier this year, Jonathan Cribb, associate director of the IFS and head of retirement, savings and ageing, was unconvinced this would solve the problem though.
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He said: “A double-lock is not much better than a triple lock in terms of predictability.”
According to IFS estimations, the protection adds £11bn a year to Government spending.
Mr Cribb added: “If the economy does really well over the next 15 years, then the triple lock will do nothing.
“And if the economy does really badly, it will cost a load of money. I think that’s difficult for public finances.”
Official projections by the Office for Budget Responsibility (OBR) show that spending on the state pension is set to rise by 5 per cent of GDP today, or £150bn, to 8 per cent by 2070, equivalent to £240bn.
The report also referenced a previous Government review of the state pension age by Baroness Neville-Rolfe, which said it would have to rise significantly to prevent costs from rising dramatically.
Under the current triple lock policy of at least a 2.5 per cent increase, the IFS estimated that state pension payments will rise from £230 a week to £250 by 2043 in today’s money.
This would raise the level of the state pension to 33 per cent of average earnings from just over 30 per cent today but add £15bn to annual public spending by 2050 compared with lifting it in line with wage growth.
Last week, Paul Johnson, director of the IFS, called for the triple lock to be scrapped “as soon as possible” as Labour faces pressure over the £22bn fiscal gap left behind by the Tories.
He said it “can’t go on forever” and said that once the state pension reaches 33 per cent of average earnings under the triple lock, it should be removed.
The IFS also said employers should be forced to pump more money into the private pensions of their employees, calling on bosses to put at least 3 per cent of revenues towards a private retirement fund, with both employees and employers gradually contributing more as their earnings rise.
It said by doing this, financial security in retirement would improve and boost nationwide pension savings by £11bn.
Mr Johnson said: “There is a risk that policymakers have been complacent when it comes to pensions.
“Without decisive action, too many of today’s working-age population face lower living standards and greater financial insecurity through their retirement.”
The Government has been contacted for comment.
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