New proposals for state pension changes by the Tony Blair Institute have prompted debate about uprating and reforms more broadly. While some see the Institute's ideas as too controversial to ever be implemented, the debate about affordability has been welcomed.

In a paper published on Friday, the institute has proposed replacing the so-called ‘triple lock’ for uprating state pensions with a smoothed earnings link from 2030, personalising state pension income – based on health and around a uniform 20-year entitlement – and building in flexibility to effectively allow loans from the state pension for periods without income during working age. 

The thinktank called its new model a ‘lifespan fund’ which would act as “a flexible lifetime income-support account that individuals build up through active contribution to society”. 

The reforms would seek to address the spiralling cost of the triple lock, brought in by the coalition government in 2011 to address high levels of pensioner poverty by increasing the state pension by the highest of earnings, inflation or 2.5%. Since then, the generous uprating has arguably fulfilled that task, with pensioners now the least likely age group to live in poverty as state pension increases outstripped pay rises in most years.  

However, removing it is seen as taboo among politicians. Silver voters have become accustomed to the annual improvements, perceiving it as an entitlement. Labour, the Conservatives, Liberal Democrats and Reform UK have all pledged to keep the triple lock; only the Greens proposed moving to a double lock in 2024. An attempt on the Isle of Man to scrap the policy led to outcries and a U-turn last year. Together with Labour’s winter fuel allowance debacle, this will have done little to change most politicians’ fear of touching the popular benefit.

 
Instead, governments have sought to control state pension costs by increasing the age of entitlement for those not yet retired, currently rising to 67 until 2028, before going up to 68 in 2044-46. 

The Tony Blair Institute’s plans are not without merit, found Tom Selby, director of public policy at investment platform AJ Bell, such as a smoothed earnings link.  

“Likewise, it isn’t completely inconceivable that people could be permitted to take state pension income more flexibly at a younger age in exchange for accepting a discount,” he said.  

However, the proposal to base state pension income on personalised life expectancy and health data “will surely never get off the ground”, he predicted.  

The thinktank justifies this proposal with data which suggest that differences in healthy life expectancy in the UK are widening. A recent report by the Office for National Statistics found the gap between longest and shortest healthy life expectancies has reached about 15 years. The North East of England, Wales and Scotland have some of the lowest healthy life expectancies. Overall, healthy life expectancy has decreased to its lowest level since 2011. The survey relies on self-reporting and includes both physical and mental health conditions. 

Controversially, the proposal to base entitlement on health data would require state departments to access NHS records. “The prospect of the government calculating an ‘actuarially fair’ retirement income for each individual based on key details like their personal health records feels somewhat dystopian,” Selby said.  

It would also come with serious moral hazard risk, he warned, as people might overstate their health concerns and habits. As with working age benefits, doctors would end up being de facto arbiters of who gets more.  

Selby also suggested a personalised state pension could lead to discontent as some people would see their neighbours receive more than they do.  

Debate about state pension affordability is welcome, said Mark Futcher, head of DC at Barnett Waddingham, but said the focus should not just lie on state pension uprating. 

 

“If policymakers are serious about improving long‑term retirement outcomes and reducing reliance on the state, reform of automatic enrolment must be the priority,” he said. 

 

He wants to see the self‑employed and those on lower or irregular earnings auto-enrolled. 

 

“Equally important is adequacy,” he added. Along with basing contributions on total earnings rather than a band, this should mean gradually upping them from 8% to nearer 12%, he argued, “with appropriate support for employers and employees". 

 

“A strong, fair and sustainable pensions system requires bold decisions on coverage, contributions and engagement, not just adjustments to the state pension formula,” said Futcher. 

 

The Pensions Commission is due to produce an interim report shortly, which could include recommendations for contribution increases. However, the government has excluded auto-enrolment increases in this parliament, so any recommendations could only be for a future government.