12th June 2015
The rising cost of the state pension ‘triple lock’ could mean the government is unable to maintain a budget surplus, the Office for Budget Responsibility (OBR) has warned.
Chancellor George Osborne has set out plans to return the UK balance sheet to a surplus but the OBR warned the cost of the triple lock – which makes sure the state pension increases at the higher of earnings, prices or 2.5% each year – will make it difficult.
In its Welfare Trends report, which makes medium and long-term projections for UK welfare spending, it said the triple lock cost has increased state pension payments.
‘Our long-term projection of pension spending is also sensitive to the assumption we make about the cost of the triple lock on uprating, which, every time earnings growth drops below inflation or 2.5% ratchets up average pension awards relative to the economy’s capacity to fund them,’ it said.
The OBR is predicting that the UK’s ageing population means state pension and health spending will push the 0.3% surplus Osborne hopes to achieve in 2019/20 into a deficit by 2023/24.
It also warned that the triple lock has become more expensive than first predicted when it was introduced in 2010 and ‘is assumed to put further upward pressure on state pensions spending as a share of GDP over the long term’.
The government had believed the cost of the triple lock would be £400 million by 2014/15 but it is estimated to have cost around £2.9 billion in 2014/15.