IFoA says pensions triple lock is not a long-term solution and may no longer be needed

• Government priority should be ensuring people have incentive to save
• Social care costs are a ticking time bomb for future generations
• Current working generation already facing significant financial burdens

In its response to the Work and Pensions Select Committee’s inquiry on intergenerational fairness in pension provision, the Institute and Faculty of Actuaries (IFoA) says the state pension triple lock is unnecessary if the level of the new State Pension has been properly set.  Maintaining the triple lock would mean that retirement income increases relative to the working age population, and could place an unfair burden on future working generations.

If intergenerational fairness is to be achieved there are four main priorities that the Government needs to address:

• Both the pension and social care framework must be sustainable in the long term
• There must be clarity on the role of the State
• People need to understand the likelihood of living to much older ages, not just their average life expectancy
• People need to understand the level of saving they will need to meet their needs in retirement

The IFoA also stressed the incentive to save should be the most important aspect of any changes, particularly to the taxation of pensions.  Moving to a system that taxes pension savings on the way in, as is currently being considered by the Government, effectively brings forward tax revenues from the current UK workforce who will be the future pensioners.  However it is this group who will already be facing the largest bills for pensions, and health and social care.

In addition, constant tinkering creates a lack of stability in pensions provision (from State, occupational and private) that has created a lack of trust that the benefits available for current pensioners will be available for future generations.  This is a barrier to saving that needs to be addressed if the pensions framework is to be sustainable over time.

Overall, priority should be given to making sure individuals understand not just their life expectancy, but their likelihood of living to much older ages, and the level of savings they will need to meet their retirement income needs.  This will need to include potential social care costs, as someone needing care could unexpectedly exhaust their retirement funds to pay for care and leave them relying on State benefits. 

Colin Wilson, President-elect of the IFoA, comments:

“The triple lock was important as a temporary measure after the link of State Pension to earnings was restored in getting it to a level that is fair in relation to wages.  However, based on current economic trends, the triple lock will increase expenditure on the State Pension as a share of GDP over the long term and will create an unnecessary drain on the future workforce.

“The significant financial burdens facing the current generation of workers such as rising student debts, high rates of unemployment and the increase of house prices as a multiple of income cannot be ignored. It is vital for the Government to encourage saving, however, consideration must also be given to whether younger workers in particular are likely to have sufficient wealth to do so while meeting their immediate needs. To achieve intergenerational fairness it is important that the current workforce is not unnecessarily burdened with funding State benefits which will likely not be as generous when they retire.

“As the number of people with care needs is rising, yet State funding is decreasing, striking the right balance between State and self-funding will be important in creating a system that is sustainable over the long term.  The current structure has created a ‘ticking time bomb’ that the Government needs to address to save people depleting their retirement savings unexpectedly to pay for care and then needing to fall back on the State.”

~ENDS~

Contact:
Annette Heninger, Media Relations Manager
Tel: 07525 592 198
Email: annette.heninger@actuaries.org.uk

Editorial notes:
View the IFoA’s full response can be viewed on the consultation response page. 

About the Institute and Faculty of Actuaries

The Institute and Faculty of Actuaries (IFoA) is a royal chartered, not-for-profit, professional body.

Research undertaken by the IFoA is not commercial.  As a learned society, research helps us to fulfil our royal charter requirements to further actuarial science and serve the public interest. 

Actuaries provide commercial, financial and prudential advice on the management of a business’s assets and liabilities, especially where long term management and planning are critical to the success of any business venture. They also advise individuals, and advise on social and public interest issues.

Members of the IFoA have a statutory role in the supervision of pension funds and life insurance companies. They also have a statutory role to provide actuarial opinions for managing agents at Lloyd’s.

Members are governed by the Institute and Faculty of Actuaries. A rigorous examination system is supported by a programme of continuing professional development and a professional code of conduct supports high standards reflecting the significant role of actuaries in society.

The IFoA is available to provide independent expert comment to the media on a range of actuarial- related issues, including enterprise risk management, finance and investment, general insurance, health and care, life assurance, mortality, and pensions.