May Keeps U.K. ‘Triple Lock’ Pension Vow Faulted by Ex-Minister

(Bloomberg) -- Prime Minister Theresa May’s office said her government is committed to the U.K.’s “triple lock” pension guarantee ensuring minimum increases, after the former minister responsible for retirement called for it to be scrapped.

The cost of the policy will become enormous by the end of the decade, Ros Altmann, who left the government when May took office earlier this month, told the Observer. Instituted in 2010, the measure ensures retirement payments rise by inflation, average earnings or 2.5 percent -- whichever is higher.

“The triple lock is a political construct, a totemic policy that is easy for politicians to trumpet, but from a pure policy perspective keeping it forever doesn’t make sense,” Altmann told the newspaper. “The cost of the triple lock on the public finances from 2020 onwards is enormous. And if you reduce it to a double lock you save billions of pounds.”

Policy Revisit

The former pensions minister’s comments throw light on a possible battleground over public spending as new Chancellor of the Exchequer Philip Hammond prepares to revisit fiscal policy later this year. He has pledged to be ready to “reset” the country’s budget stance if needed in the aftermath of the June vote to leave the European Union.

“The manifesto contains a commitment to protect the triple lock,” according to a statement provided Sunday by a spokesman for May’s Downing Street office. “That commitment still stands.”

The “triple lock” was instituted in the first budget of George Osborne, Hammond’s predecessor, seeking to win votes from an age group that tends to vote in elections. It became one of the most enduring features of his fiscal policy, cementing spending in an area that takes up the biggest chunk of government expenditure -- despite his wider aim of curbing a deficit that was swelling when he took office in 2010.

Altmann said that while she was a minister, she had lobbied former Prime Minister David Cameron to replace the policy with a “double lock” that removed the automatic 2.5 percent minimum -- so the pension would increase in line with inflation or earnings only.

“Absolutely we must protect pensioner incomes, but the 2.5 percent bit doesn’t make sense,” Altmann told the Observer. “If, for example, we went into a period of deflation where everything, both earnings and prices, was falling then putting pensions up 2.5 percent is a bit out of all proportion. Politically nobody had the courage to stand up and say we have done what we needed to do.”

To contact the reporter on this story: Craig Stirling in London at cstirling1@bloomberg.net. To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Steve Geimann, Andrew Reierson