UK urged to reform pensions triple lock by OECD

A major global economic body has urged the UK government to reform the pensions triple lock to improve the public finances.

The Organisation for Economic Co-operation and Development (OECD) said a shake-up would help give ministers more "fiscal headroom" - as it warned the country was vulnerable to shocks, including further increases in energy prices amid the wars in Ukraine and the Middle East.

The policy was introduced by the coalition government in 2010 and was designed to ensure people's pensions were not impacted by rises in the cost of living over time.

Under its terms, the state pension must rise every April by whichever is highest out of average earnings, inflation or 2.5%.

But critics say the policy has become too expensive for the Treasury and is unfair on people of working age who may also be struggling.

A recent report by the Institute for Fiscal Studies (IFS) said the triple lock added an extra £11bn a year to public spending.

Paris-based OECD, a club of 38 rich countries, on Wednesday added its voice to calls for reform in its latest Economic Outlook report.

It said: "Maintaining and strengthening current fiscal efforts is essential against the challenging backdrop of high borrowing and debt, and as higher debt interest payments have eroded fiscal headroom.

"Reforming the costly triple lock uprating of state pensions would help, by indexing pensions to an average of CPI [consumer price index of inflation] and wage inflation, and by providing direct transfers to poor pensioners to mitigate poverty risks."

It said reforms to tackle labour market inactivity and reducing "policy uncertainty for business investment" would also help improve the UK's finances by encouraging growth.

Chancellor Jeremy Hunt confirmed in his recent autumn statement that the state pension will rise by 8.5% in April 2024 as part of the policy.

It will increase to £221.20 a week, in line with an increase in wages - the highest of the three triple lock measures this time around.

The Conservatives and Liberal Democrats have both insisted they are committed to maintaining the lock, although some senior Tories have called for it to be scrapped.

Meanwhile Labour has refused to say if the policy will continue if it wins the next election.

The party's shadow culture secretary Thangam Debbonaire recently told Sky News it would be "irresponsible" to give a definitive answer as it would depend on how the current government handled the nation's finances in the meantime.

OECD's comments came as it forecast that gross domestic product (GDP) growth in the UK will "remain stable but low" in the coming years, rising from 0.5% this year to 0.7% in 2024 and 1.2% in 2025.

It also expects the Bank of England to hold interest rates at the current level of 5.25% throughout next year before easing rates in 2025 as inflation subsides.

-sky news