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The controversial triple lock policy is under fire yet again, as earnings figures last week paved the way for the state pension to increase by as much as 8.5pc next spring.
It would mark the second major rise in a row, after high inflation pushed the state pension up by 10.1pc this April.
Each percentage point rise adds around at least £1bn to the Government’s state pension bill, which is already in excess of £110bn and makes up around half of spending on benefits.
It is expected to hit close to £150bn by the end of the decade, according to official forecasts.
While the triple lock protects the real value of poorer pensioners’ income, critics argue that persistent rises mean costs can easily ramp up and spiral out of control.
But the Government has another lever it can pull to control spending: the age at which people can start claiming their state pension.
The state pension age is already on track to increase from 66 to 67. A further rise to 68 is legislated between 2044 and 2046, but the Government wants this to happen by 2039.
Jonathan Cridland, who conducted the last state pension age review in 2017, has already warned MPs that the triple lock should be axed to stop the state pension age from rising.
Mr Cridland told the Work and Pensions committee in February: “If there were those in government who felt that the pension age increase needed to come earlier or go further, then the triple lock could not be sacrosanct – the triple lock had to be looked at.”
Mr Cridland added that while people “want their pension to be as valuable as it could be”, they also “want to live long enough to get their pension”.
“Having the triple lock as a given, but endlessly having to push up the state pension age, doesn’t necessarily serve all pensioners,” he said.
So which is better, waiting longer for a bigger pension, or accepting a smaller pension sooner?
The multibillion-pound lever
In the next tax year alone, the state pension will cost £125bn, according to the Office for Budget Responsibility.
Spending on pensions is only going in one direction – but there will be a slowdown in 2026, as the state pension age increases to 67.
Jonathan Cribb, of the Institute for Fiscal Studies, a think tank, said: “If the Government got rid of the lock and moved to an earnings indexation – which would still be more generous than working age benefits which go up in line with prices – then it would be a reasonable to say that it might not need to put up the state pension age as much.”
Mr Cribb added: “Every time the state pension age increases by a year, the Exchequer saves around £5.5bn.
“We can use these figures to paint a picture of what the trade-off is between the state pension age and how it is indexed,” he added. “£5.5bn is 4.4pc of the forecast cost of the state pension next year. So, if inflation was 4.4pc and you did not have the triple lock in place, then you would save that money.”
Putting more money in your pocket
While many may protest at the idea of working for longer – as hundreds of thousands did in France – it may be worth it if it means keeping the triple lock.
If the state pension age stayed at 67, but the triple lock was scrapped and payments instead increased by 2.5pc each year, then a man would receive £253,832 from his state pension up until the average life expectancy of 85, according to calculations from the retirement specialist Canada Life.
A woman would receive £288,148 thanks to a longer life expectancy of 87.
But if the state pension age increased to 68, with a triple lock that averaged at 3.5pc each year, then a man would have earned £266,194, or £12,362 more, Canada Life found. A woman would have earned £307,265, or £19,117 more.
Andrew Tully, an independent pension expert, said: “There is a tricky balancing act for the Government as it looks to the sustainability of the state pension. There needs to be a sensible debate around intergenerational fairness and affordability.”
The inequality impact
However, these figures are based on nationwide averages for life expectancy.
The reality is that there are significant regional differences, which means that those in poorer areas with the lowest life expectancy will receive less in state pension payments over their lifetime.
When the state pension age increased from 65 to 66 in 2010, one in seven 65-year-olds were pushed into income poverty as a result, according to estimates from the IFS.
In the most deprived 20pc of areas in England, there was an 11 percentage point increase in the number of over-65s returning to work. That was more than double the wealthiest 20pc of areas, which recorded a rise of just four percentage points.
Any state pension policy is also fertile ground for debate around intergenerational fairness.
Angus Hanton, of the Intergenerational Foundation, added that while reversing the triple lock would ease the burden on younger workers to fund the state pension system, increasing the pension age would hurt them too.
“Doing so will result in younger generations footing the bill for the triple lock today while having to work for longer, tomorrow,” he said.