State pension triple lock 'forecast to push up' DWP spending by £600million a year

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The IFS is sounding the alarm over the growing cost of the state pension triple lock

Analysts warn that the state pension triple lock is "forecast to push up" benefit spending by £600million a year despite calls to cut Britain's ballooning benefits bill.

The Office for National Statistics (ONS) is set to publish average earnings growth figures for the May to July period next Tuesday, in a release that will almost certainly set the level of next April's state pension rise.

Under the triple lock formula, the flat-rate elements of the state pension are uprated each year by whichever is greatest: CPI inflation, growth in average earnings, or 2.5 per cent.

With annual state pension expenditure currently running at £154 billion, economists note that small percentage changes translate into billions of pounds.

Fresh analysis from the Institute for Fiscal Studies (IFS) underscores just how consequential the triple lock has become for the Treasury's books.

The triple lock was introduced by the Coalition government in 2011, replacing the previous system under which the state pension had risen in line with inflation since 1980.

That three-decade link to prices meant pension payments lagged significantly behind workers' wages during a period of robust real earnings growth.

Labour had already pledged in the mid-2000s, following the Pensions Commission's recommendations, to shift to earnings-based uprating.

The £154billion now spent annually on the state pension makes it comfortably the UK's largest single benefit. Its scale rivals the combined budgets of the Ministry of Defence and the Department for Education.

Of that total, £131billion falls under the triple-locked flat-rate components, the basic and new state pensions. Smaller earnings-related elements continue to be uprated with CPI inflation alone.

Since the triple lock's introduction, state pension expenditure has climbed £47billion in real terms compared with 2010; an increase that has occurred despite substantial rises in the state pension age, particularly for women.

The IFS calculates that £16 billion of current annual spending is directly attributable to the triple lock, representing the additional cost over what would have been paid had pensions simply tracked average earnings growth from 2010 onwards.

As a share of national income, state pension spending has risen from 3.6 per cent two decades ago to 4.3 per cent in 2010 and now stands at 4.9 per cent.

Office for Budget Responsibility (OBR) projections indicate the triple lock will add a further £600million annually by 2029-30.

Jonathan Cribb, deputy director of the IFS, said: "Each increase in spending builds upon the last, and so the long-run cost is substantial but very uncertain.

"If the triple lock were kept in place until 2050, its cost would be around £20billion per year in expectation, but could reasonably be anywhere between £5billion and £40billion per year. The more volatile inflation and average earnings growth are, the higher the cost."