The government will face “insurmountable pressure” to increase the minimum retirement age by maintaining the triple lock on state pensions, according to the Institute for Fiscal Studies (IFS).
The analysis also indicates that the triple lock could potentially increase spending by anywhere between a further £5 billion and £45 billion per year, in today’s terms, by 2050.
This projected range is big because of the uncertainty over the path of the state pension that the triple lock creates, making it difficult for either the government or future pensioners to plan their finances, the IFS said.
If the triple lock is kept in place indefinitely, the state pension could potentially be worth between £10,900 to £13,400 per year in today’s terms by 2050, the IFS estimated.
It added that this uncertainty makes it harder for people to plan for retirement.
Published ahead of next week’s release of official data for earnings growth, which will be used to set the annual increase in pensions, the report estimates spending on retirees could rise by a further £2 billion from April 2024.
Prime Minister Rishi Sunak is expected to support the increase after pledging last month to maintain the triple lock, which guarantees the state pension rises each April by whichever is highest of pay growth, inflation or 2.5 percent.
In analysis of the past 12 years, the IFS said that if the state had used only a single lock—linking annual pension rises to earnings or inflation—it would have spent £11 billion a year less.
Had the values of the basic state pension and the new state pension instead been determined by inflation or earnings growth since 2011, they would both now be around 11 percent lower, with a full new state pension worth around £180 per week and the basic state pension worth around £140 per week, the report said.
IFS also forecasts that the uncertainty ahead means the extra annual cost could be just £5 billion, or as much as £45 billion, depending on the path of earnings and inflation over the next two decades.
The IFS said the extra spending for the UK’s 12 million retirees would force ministers to look for savings elsewhere and possibly from increases in the state pension age for future generations.
The report, published on Friday, said: “Retaining the triple lock for too long increases state pension spending so significantly that it leads to insurmountable pressure for a much higher state pension age.
“This would particularly affect people with poorer health who struggle to remain in employment until they reach state pension age.”
Last month, IFS director Paul Johnson said pensioners had received two years of protection from the UK’s cost of living crisis, benefiting from the triple lock last year when prices were rising faster than incomes, and benefiting again this year now that earnings were rising faster than prices.
“That is what the triple lock is intended to achieve,” he said.
The IFS said that earnings growth figures released next Tuesday will likely determine next April’s increase in the state pension for the UK’s 12 million pensioners.
This is because it is typically used as the measure of earnings for the pensions triple lock – and because it is also likely to be above both 2.5 percent and CPI (Consumer Prices Index) inflation in September, it added.