State pension Triple Lock ‘could be replaced with new system’

The UK’s state pension will become unaffordable by 2035, a think-tank has warned.

The last time it was measured, in 2021, the State Pension had a total obligation to the British people of £8.9 trillion, an amount set to balloon even further due to the ratchet effect of the triple lock.

The State Pension is paid from current tax revenues rather than from money set aside in a dedicated pot built up during a person’s working life, which creates an economic burden on working-age people, the Adam Smith Institute warned.

The average person born in 1956 will receive £291,000 more than they put in, it claimed.

Britain’s demographic trends will also put the state pension under strain. By 2040, 22.7 million people will be claiming benefits, including the State Pension, but only 34 million people of working age will be able to fund it.

The Adam Smith Institute said 2035 would be the year of breaking point when the state is set to spend more on welfare payouts, the greatest proportion of which is the State Pension than it will receive into the National Insurance Investment Fund Account.

The state pension costs the UK £125 billion and pays nearly 13 million retirees; the institute predicts this will surge to £150 billion in real terms within the next decade.

However, there are possible solutions.

One idea that has been mooted is removing the triple lock

Sir Steve Webb, former pensions minister and now a pensions consultant at LCP was one of the architects of the state pension triple lock . He suggested the policy could be replaced with a system whereby pensioners were paid a fraction of average wages.

Last year, he told The Telegraph: “[The triple lock] won’t last forever because logically it would go up higher than prices and earnings in the long term. There might come a point when even pensioners want money spent on other things. It won’t be here in a generation.”

Another is encouraging more immigration, as more workers mean more tax and National Insurance revenue can be used to pay out the state pension.

Immigration currently brings an additional £3.3billion into Treasury coffers annually, according to research by the Centre for Economics and Business Research (CEBR).

Nina Skero, chief executive of CEBR, told GB News immigration was “undoubtedly” supporting the state pension system.

The average immigrant is more likely to be of working age than British-born residents, contributing more through National Insurance, income tax and council tax while using fewer public services.