A former Bank of England economist has sparked controversy by calling for the State Pension triple lock to be scrapped and payments reduced for those in their 60s.
Neil Record branded the current system a “mess” that costs taxpayers £147billion a year, according to figures from the Office for Budget Responsibility.
He argued that the Department for Work and Pensions should “abandon” the triple lock and move to a more affordable graduated system, where younger retirees get smaller sums which increase as they age.
He said individuals should also take more responsibility for funding their old age, rather than relying on the State.
Mr Record said the elderly have done better than workers over the past 14 years with the State Pension rising some 10.3% more than wages.
He said: “Our state pension system is a mess.
“It is a huge burden on the taxpayer – £147bn this financial year – and famously uses a formula, the “triple lock”, to increase payments every April in a way that is complicated, impossible to control and is actually designed to reward pensioners more generously than the workers paying them.”
He added: “In the 14 years since the triple lock came into full operation (2012-2013), average earnings have risen at a rate of 3.3% per year – but the state pension, benefitting from the triple lock, has risen by 4% per year.
“This 0.7 percentage point per year uplift may not sound much, but without the triple lock and just relying on average earnings, today’s state pension would be £208.65 per week rather than the current £230.25.
“So pensioners have done better than workers to the tune of 10.3% over the past 14 years. This feels morally and financially unsustainable.”
He has come up with a blueprint of four reforms to create what he insists would be a fairer and more sustainable pension system.
- End the triple lock – scrap the guarantee and instead link increases before retirement to average wages, then switch to inflation-based rises once retired.
- Abolish the cliff-edge – remove the system where someone gets nothing the day before state pension age and the full sum the day after.
- Graduated payments – introduce a taper so younger pensioners receive smaller sums, with payments rising as they get older.
- No cap on inflation – unlike most company schemes, state pensions would rise fully in line with inflation without an upper limit.
He argued that today’s workforce and life expectancy bear little resemblance to the post-war era when retirement rules were first set.
“Today, there are numerous part-time and casual jobs and people in their 60s are often capable of doing them,” he told the Telegraph.
The proposed taper system would mean those in their early 60s receiving less, with weekly payments rising as they get older.
Mr Record said it is time to do more to encourage people to take greater responsibility for planning for their retirement, rather than relying on the State Pension.
“I would continue to strongly encourage workers to make their own provision for retirement (as the relatively new auto-enrolment workplace pensions are doing) so that the state pension does genuinely form the bedrock of retirement income, not the totality,” he said.