The old age pension triple lock is under attack again. The Financial Times wants it scrapped. The Resolution Foundation wants it ended. The Tony Blair Institute says it is unaffordable. But they are all looking at the wrong pension subsidy to criticise.
The UK spends around £154 billion a year on state pensions. The accumulated additional cost attributed to the triple lock is estimated at around £16 billion. That money has helped protect pensioners' incomes, including those of the many people who depend almost entirely on the state pension.
There is, however, another pension subsidy that receives far less attention: tax relief on private pensions. The total cost of private pension tax reliefs is around £83.9 billion a year, with 71% of that tax relief going to higher and additional-rate taxpayers.
Most strikingly, the cost of higher-rate pension tax relief, over and above the basic rate everyone can enjoy, is around £15 billion a year, which is remarkably close to the £16 billion cost attributed to the pension triple lock.
So why is the political debate focused on restraining the incomes of pensioners rather than on reducing tax subsidies for people already able to accumulate substantial private wealth?
This isn't fundamentally an affordability question. It is about inequality, political priorities and whose interests government chooses to protect.
I think the triple lock should stay, and higher-rate pension tax relief should go. You may, of course, disagree.
This is the audio version:
The Debate Ammunition for this video is available here.
This is the transcript:
The Triple Lock that protects the incomes of the UK's old-age pensioners is under attack again.
The Financial Times has said it should be scrapped.
The Resolution Foundation, which is laughably called a left-of-centre think tank, wants it ended.
The Tony Blair Institute has called it unaffordable.
But all of them are looking at the wrong pension subsidy when making their comments, and without exception, they are reaching entirely the wrong conclusions with regard to the pension subsidies that the UK government incurs.
But what is the Triple Lock? Let's be clear about what we're talking about.
State pensions rise each April. That is true for every old-age pensioner in the country who does receive a pension from the UK government, and let's be clear, I am one of those. The pension increases by the highest of three numbers.
One is the average earnings growth in the previous year to September.
The second is the increase in the Consumer Price Index, or inflation, as the government prefers to measure it, again for a period ending in the previous September.
Or 2.5%.
The three elements then: average pension growth, the CPI index, or 2.5%.
The Triple Lock was the idea of George Osborne, and it took effect from April 2011. The fact is, it was a purely political gesture introduced by George Osborne when the Tories came into government in 2010, designed to highlight the fact that Labour, for all its so-called pro-pensioner credentials, had let the value of the old-age pension fall at that time, and the Triple Lock was deliberately designed to ensure that pensions rose faster than earnings in most cases to restore the differential between the two, which had become unacceptable.
So we have to understand everything about the Triple Lock as if it is about politics and not just about economics.
But what does the Triple Lock actually cost? The Institute for Fiscal Studies, the so-called premier economic think tank in the UK, although I would question that, estimates that the UK currently spends £154 billion a year on state pensions. And of that sum, the Institute for Fiscal Studies, or IFS as it is known, thinks that £16 billion arises from the accumulated impact of the Triple Lock. In other words, the Triple Lock has worked. It has restored the value of the old-age pension in the way that George Osborne intended that it should. The Tories did leave a lasting legacy as a result. It's one of the few good things that George Osborne ever did. About £1 in every £10 of the state pension spending these days is a consequence of his Triple Lock promise.
But let's be clear, though, that would mean that the state pension would still cost £138 billion a year if there had been no Triple Lock. The lock did something important, though. It did restore the value. It did make vulnerable pensioners better off than they would otherwise have been.
And does it matter? Yes, it does. That's because this pension is critical to the well-being of many older people. If the pension had not been raised by the Triple Lock, it would now be about 12% lower, and that is roughly £1,500 a year now. For someone who's wholly dependent upon that state pension, that is a lot of money when the total pension in question is less than £13,000 a year.
Many say the Triple Lock should go, though. They're saying that pensioners have now caught up, but that is misleading. Those who make this claim are, of course, those who are well off. Everyone in the Financial Times is. Everyone in the Tony Blair Institute is. Everyone working for the Resolution Foundation is probably financially secure.
The fact is that insecure households with very low incomes do have relatively high increased costs compared with those households with financial security. Some of the strongest impacts of inflation in the UK have been on basic costs of living: food prices, energy prices, other fixed costs. Those are ignored when people say that pensions have caught up.
The fact is that pensions might have increased compared to relative wages since 2010, but those who are on the very lowest levels of earnings, and remember pensioners are much less than the minimum wage per year, are still suffering as a consequence of inflation.
Age UK says that one in six single pensioners in the UK relies entirely on the state pension and benefits to survive. That means that they are amongst those who are vulnerable to any ending of the Triple Lock arrangement. For them, the state pension is not supplementary income: it is the foundation of their financial security, and that is true for most of the remaining pensioners as well. They may have some other source of income derived from a pension pot or whatever, but the average pension pot is, you should recall, only around £60,000 a year in the UK, and that buys a very modest pension indeed. Cutting the Triple Lock, and so pensions, to save money would directly affect some of the most vulnerable people in our society.
But in any case, this focus on the Triple Lock is entirely misplaced. That is my argument. We should instead be looking at the cost to the government of private-pension tax relief. Now, whilst the cost of state pensions is £154 billion a year, almost unnoticed is the fact that in the 2024/2025 financial year, the last for which we have data available, the total cost of tax reliefs on private pensions was some £83.9 billion a year in the UK. In other words, subsidies for private pensions cost well over half the cost of the total state pension on which many people are totally dependent.
There are, however, two figures that I should stress. One is that this figure is gross. In other words, whilst the government likes to state this cost of pension tax relief having offset taxes paid on current pensions received by people in retirement, that is not the true cost of the pension tax relief. There would still be that tax income received, even if the government stopped some of the pension tax relief, which contributes to the total £83.9 billion cost. So you cannot offset the two. That is just false accounting.
The second is that the figure of £83.9 billion does include £4.7 billion worth of tax relief provided within pension funds themselves. So the people who are making pension contributions do not see all this relief, but they do get the benefit of it, and that's the important point. They are being subsidised heavily by the state.
And who gets this relief? Well, 57% goes to people who are on the higher rate of income tax, which means they are paying at 40%. Another 14% goes to people who are paying at the additional rate of income tax, and that is those who pay at 45%. Only 29% of the total value of this pension tax relief was given to people who are paying at the basic rate of income tax. In other words, 71% of the total income tax relief on pension contributions was provided at higher or additional rates of tax.
But to contextualise this, there were 7.71 million people in total who paid higher and additional taxes, and they were almost exactly 20% of all taxpayers. This means that on average, they get £7,726 of tax relief each year, which is more than half the value of the total basic state pension, which has not yet reached £13,000 a year. And to compare it with Universal Credit, the basic Universal Credit allowance in that year was just £4,400 for an adult.
So those who are getting pension tax relief, and are higher or additional rate taxpayers, are getting considerably more in state benefits than of those who are on basic Universal Credit. That is critical to understand.
At the same time, it's also important to understand that those who get tax relief and who are basic rate taxpayers get an average of £787 each; near enough, 10% each, compared to those who are on higher and additional rate tax. This is a tax relief that is heavily skewed in favour of those who are the most wealthy in our society. And remember that £787 is an average. Most people who are basic rate taxpayers get very little tax relief at all.
In other words, this is a totally unfair tax relief given almost entirely to those who can afford to save themselves and who are being subsidised by the state to become even more wealthy than they would otherwise be. That is the net outcome of this. The state pension prevents poverty. The pension subsidy creates wealth. That's what it's all about, or rather, it doesn't create wealth; it subsidises wealth.
And let's be clear: the Institute for Fiscal Studies says that the cost of the higher and additional rate tax reliefs for those who are paying at 40% and 45% in the UK might amount to around £15 billion a year. My own estimate in the Taxing Wealth Report was £14.5 billion a year, so we are remarkably close.
The annual cost of giving tax relief to those who are already well off, to additionally subsidise their savings so that they may accumulate faster than those of anybody else in society, may be around £15 billion a year, a number that is remarkably similar to the £16 billion a year additional cost that has supposedly been created by the Triple Lock since it was first introduced in 2011.
Now, let's be clear about what we are facing then. Nobody is saying the Triple Lock should be removed. The pension that has been given will still be given. The claim is that we can no longer afford to increase the Triple Lock, but at the same time, nobody in the FT, in the Resolution Foundation, in the Tony Blair Institute or anywhere else in the popular media, is saying that we should be cutting the tax relief on pensions.
This then is all about a political choice. Those who are claiming we can no longer afford the Triple Lock are deciding that if there is to be austerity in this country, we should be putting that austerity onto vulnerable old-age pensioners who have no other source of income. But we could instead be reducing the tax subsidies given to higher earners who are accumulating private pension wealth at cost to the state.
So, why are we choosing to subsidise the already wealthy and not protect the vulnerable? The Triple Lock protects incomes, while higher-rate pension relief simply subsidises wealth accumulation in a way that does, by the way, also create no new investment in the UK economy, as I have shown in a great many videos over time.
My argument then is very simple. We should keep the pension Triple Lock. Doing so would be fair and entirely just. And if there is any question as to the relevance of cost, we should be cutting pension tax relief. Not because the government needs the money, because it doesn't, but because this is an issue around inequality. Why should we subsidise the savings of the best off at a rate that is higher than the rate of subsidy given to those who are on low pay? This is a matter of social injustice. The government should not be favouring the wealthy over everybody else. Money is not the issue here. Social and economic justice is. The higher rates of tax relief on pension contributions should go.
And all of this has a particularly relevant political poignancy at the moment because, at this moment, people in this country already feel deeply alienated by a state that clearly exists to support those with wealth and not those with needs. That is why we have a problem with the far right in the UK, and that is why its popularity has grown so much.
People do feel left behind in this country, and those who feel most left behind, and those who are most inclined to vote for the right-wing, are pensioners and those on very low pay. And these are precisely the people who would be punished if we take away the Triple Lock guarantee on their pension increases. They will become even more alienated in a society where they already feel like outsiders, and they will, as a consequence, simply move ever closer towards supporting fascism.
We do then have a political choice at a level other than cost. This is not a question about affordability. It is a question about whose income the government chooses to protect and whose wealth accumulation it chooses to subsidise. If it chooses to subsidise the wealthy, you can guarantee that will be a gift to the far-right political parties of the UK: Reform and Restore. That's the point I'm trying to make, as well as the fact that there is a social justice issue here.
We have to make a political choice, and the right political choice at this moment is to favour those in need. But the wealthy and their institutions: the Financial Times, the Resolution Foundation, the Tony Blair Institute, all of them want to continue to subsidise wealth, and they don't give a damn it would seem about anyone else, which shocks me to the core. The time has come to talk about what is necessary if we're going to fight poverty and if we're going to fight fascism. And those two causes align on the need to preserve the Triple Lock. That's what I think must happen.
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[…] The video that this Debate Ammunition supports is available here. […]
I am tiring of this ‘finding money at the back of the sofa’ form of politics. Surely there is nothing more to cut?
You are right to point out that people are being alienated towards politics and politicians to the point where they will look to others with power to solve their problems. This is where Farage and Restore come in, how odious creatures like Jenrick come into play.
The thing is, after the 2008 crisis, all the austerity we are going through was meant to have ‘balanced the books’. Well, it’s been 18 years since that crash.
I mean, how soon is now? How long will it take? It’s gone on for far too long because it just has not worked. And yet we are still in some form of crisis, pursuing something that is not possible because of the means being used. Might that be a clue?
Apparently not.
Thank you
I decided on total reform, rather than the do both option, because, even if you give everyone tax relief at 20% only there is still huge inequality, which there often is when % rather than fixed sums are used.
Currently everyone earning £10,000 per year must be auto enrolled in a pension scheme. If their employer has chosen a tax relief at source pension those people will get 20% government contribution to their pension. If they are on a net pay arrangement, they won’t; they would have to claim it from HMRC, which is not likely to happen. So many of the lowest earners receive no government contribution to their pension. Even though they are the ones who need it most.
In addition very high earners can, by definition, afford to pay a lot more into their pension pots than those less well off. The £10,000 per year people will have a total annual contribution of a maximum of £800. Those with more money can contribute up to £60,000 (with some controls) and would receive tax relief of £12,000.
I would suggest it would be far more equitable to have a government subsidy of pension contributions as a fixed amount, perhaps £2,000 per person, increasing annually in line with average wage increases.
I think that limit may be too low, but you have made good points.
Might the questioning of the triple lock be yet another manifestation of the excessive power and greed of the financialised/wealthy dominating group in our flawed polyarchic “democracy”?
Polyarchy is a real-world approximation of democracy that functions in nation states which involves competition between multiple interest groups.
If you wanted to take someone’s home off them and stop it being passed on to their kids what better way to do it than to break the value of the state pension and then let inflation rip?
It’s not difficult to imagine private equity groups swooping in to say “you can use your home equity to make up the shortfall in your income until you die”.
Oh yes…..
I think my landlord (and that of many poor income pensioners) may take exception to that!
They already do.
https://sovereignboss.co.uk/home-income-plans/
Don’t forget the older pensioners who do not get the new state pension, but the old one, of about £8,800pa, possibly with some SERPS on top if they didn’t contract out.The youngest of these, who reached State Pension Age before 2016, are now in their late 70s.
Means Tested Pension Credit can top up pension for those receiving less than £12,300pa, and triggers other benefits. It is administratively expensive. Many older pensioners fail to claim it for a variety of reasons. Its a crazy way of increasing their income compared with an uplift in the basic “old” state pension rate.
But as Richard explains, we prioritise subsidising the higher rate tax payers over protecting lower income pensioners.
I would like to hear ANY MP, (basic salary >10× the older person’s old state pension) explain why they personally support that unjust immoral political choice, and who exactly benefits from it. But they never will, and no journalist will ever ask them.
I agree….
I left them out not to complicate issues for those who moan about all pensions – until they come to depend on it
Confirmation emails have gone wrong again.
Sorry, we have not solved the problem as yet. In other words, Andy was busy.
Firstly I’d introduce UBI for everyone 67 and over and scrap the state pension. This would increase every year at the same rate as the minimum wage and other benefits by some agreed formula relating to relevant costs (energy,food,rent,transport). I’d remove the farcical idea that NI is some form of savings scheme and replace it with a 5% rise in income tax and a new NIER’s to be ringfenced for holiday pay, SMP, support for between jobs etc (having just had a lot of building work done I noticed the builder used 100% subs to avoid NI). Obviously tax relief on pension contributions should be restricted to lower rate but I’d abolish it altogether. With a guaranteed UBI at 67 individuals can decide themselves whether they want a comfortable retirement or not, saving would be optional.
You would need a large increase in IT rate. The rest noted.
Pensions are taxed so much of the higher rate tax relief is reclaimed as tax, driving a coach and horses through your comparison.
Why don’t you give the full picture?
I have
And don’t be stupid is my comment to you.
Most relief is at higher rates.
Most pensions are taxed at the basic rate.
Why are you wholly misrepresenting the truth?
There is a difference by age, with the oldest pensioners on average doing worse IIRC – which matches them being on the previous pension setup but also younger pensioners being in the group most likely to have gained the most benefit from final salary pensions.
I agree with prioritising addressing the subsidy in the form of tax relief to high earners. However, with fiscal drag the bracket for being a high earner is not as high as it was and someone reaching the peak of their career later in life may need that relief to get a decent pension. It might therefore be one where only basic rate relief is provided as standard but full relief could be claimed up to a certain limit?
I also think the triple lock cannot be affordable in the long run since it pays out an inflation spike twice – once in the initial spike and again as future wage settlements catch up salaries. In a deflationary cycle the 2.5% minimum would be dropped as unaffordable anyway. Nor does it consistently raise pension living standards. It does when RPI inflation is low – when their positions are less stretched by price rises. RPI plus a small addition (e.g. 0.2%) would consistently raise pension affordability annually.
There also needs to be a consideration of workers living standards to pensioners, and things are divergent for pensioners. On average, pension-age adults have more post-tax, post-housing income than an average worker. However, that is because the majority own their own homes with no mortgage. The best off are working with no National Insurance to pay, multiple pensions and no mortgage. Maybe NI should still be payable by those, too, to pay for supporting poorer pensioners more?
Administration costs of private pensions are very high compared to the State Pension.
Looking at the figures quoted it would be possible to remove tax relief on pensions and significantly increase the basic State Pension, say by 50% which would be roughly in line with France, Spain & Germany and still end up with a little bit over.
I would imagine that for the vast majority of people unless you are in a public sector final salary scheme you would almost certainly be better off as a result
I do not think that substitution can be made. Sorry… there is a possible release of funds, but not to that scale. Basis rate relief could remain, I think. You may disagree.
I am happy to go with your opinion given your experience as an accountant and economist
There could be a substitution of a different kind, though. Having a decent pension pot is not much use if you find yourself out of work and waiting months for any support with even mortgage interest. Is there some more merit in reducing private pension support, increasing state pension provision, AND increasing provision for elements like ISAs (perhaps an alternative that attracts basic rate tax relief but loses equivalent as a penalty if withdrawn before retirement age)? The aim would be to cover not just affordability in retirement but before.
Yes
Yesterday’s BBC online coverage of this issue was disgraceful. Trumpeting that pensioners will receive more than £13000 as a result of the triple lock which has resulted in a “massive” increase in the cost of the state pension. The plight of the large numbers of pensioners reliant solely on their state pension was, apart from a brief reference to Age UK claiming that many pensioners live in poverty, was not considered worth a mention. Nor indeed was the minor point that of the 13m pensioners around 2m do not receive the full (new) pension and a further 2m or thereabouts fall short of the lower old pension rate. Rather the emphasis was on the cost of the triple lock.
Much to agree with
The triple lock is mathematical nonsense. If left in place it would eventually deliver pensions above average earnings and more. So, it must stop at some point.
A more sensible approach would be to determine what the right level of pension is today, relative to earnings (either a proportion of median earnings or minimum wage) then pre-announce and end to the triple lock when that level is reached. (Better would be to deliver that level today but that might be tough).
One could also link tax thresholds to this amount.
Finally, pensions should be taxed at the same rate as workers. (ie. Including NI).
Completely agree wrt to tax subsidies to higher earners’ pension contributions – they will save anyway.
But Clive – at £13,000 the pension is ridiculously low.
It has a long way to go, in other words.
Yes it is…. and I would prefer an immediate uplift to a “living pension”. But, given current politics, that might be too hard. Pre-announcing a level at which the triple lock ends does two things. First, it’s a statement of what we aspire to as a state pension. Second, it delivers a gradual route to that level. Oh, and it doesn’t preclude a faster move to a living pension at some point in the future.
Glad to see this video in my feed this morning.
We not only need to challenge the myth that it’s unaffordable but push back in the other direction and call for a lower retirement age and a maximum number of years before you can claim your pension.
It’s long struck me as unfair that someone could start work as a roofer aged 16 and have to work until the same age as someone who started work at 21 and spent their life sat down in an office.
We also need to push back on the divide and rule tactics being employed against the young and old, originating I strongly suspect with the super rich and promoted by the likes of David Willetts (President of the Resolution Foundation…).
While it is true some older people are sitting on expensive housing and receive decent pensions it would not take much to collapse this wealth in the event of a major financial crisis or war-induced hyper-inflation. And that of course would be terrible for their kids and grandkids.
Some of the outriders in the media for this agenda are becoming absolutely unhinged as evidenced by the final few paragraphs of this article by Louise Perry (the Youtuber who also first gave publicity to the “civil war” agenda) which are probably the most hateful words I’ve ever read in the MSM. Replace the words “elderly” with “black person” and you’ll see just vicious these people are becoming.
https://firstthings.com/modernitys-self-destruct-button/
Thank you
Maybe relabelling ‘pension relief’ as ‘pension benefit’ along with the cost and who in society recieves it may create the jaw drop feeling i had on reading this.
Am i correct in thinking that if this relief was reallocated to the most in need pensioners they could all recieve at least a 50% uplift?
Do the figures include the benefit of salary sacrifice?
On a related but slightly off article query how are public services DB pensions funded and what is the cost as you often hear about these needing to be heavily subsidised.
MPs gold plated pensions probably also need a mention when they talk about curtailing the state pensions of others less fortunate than themselves.
I am not arguing that all relief should be cancelled
I argue that higher rates of tax relief could or should be.
I think NIC relief should go too.
I do not say that this allows spending – that can be afforded anyway.
This is about social justice and tackling a gross form of subsidy that increases it.
Please excuse the second post.
Salary sacrifice should be banned. It is illegal to give salary sacrifice to someone if it would take their earnings below NMW. So the lowest paid still have to be auto enrolled in a pension scheme and make contributions, but they cannot be allowed the benefit of salary sacrifice to reduce the amount they have to pay.
Those handwringing about the cost of the UK state pension would do well to set it in context with mainland Europe.
This from Dseek –
“Replacement Rate (Income Drop): The UK has the lowest rate in the G7, replacing only about 22% of an average worker’s pre-retirement salary. For context, Italy replaces 76%, France 58%, and Germany 44%.
· Value vs. Cost of Living: The UK ranks 13th out of 28 countries. Pensioners have an average monthly surplus of just £220 above basic living costs, compared to much larger buffers in Luxembourg, Norway, and Spain.
· Absolute Payment: At roughly £1,045 per month, the UK payment is dwarfed by Luxembourg (£5,719), Switzerland (£2,400), and Norway (£2,163).
This gap isn’t accidental; it reflects structural choices:
· Lower Spending: The UK government spends just 4.7% of GDP on old-age pensions, far less than France (12%) or Italy (12.8%).
· Higher Contributions Elsewhere: Countries with higher payouts often have higher social contributions (e.g., Italy ~33%, France ~30% of gross wages vs. UK’s 18.6%).
· The Triple Lock Context: While the UK’s “Triple Lock” produces large percentage increases, critics note these are “4.8 per cent of not very much”.
See also some data I have produced this morning.
Thank you.
In terms of communication, public understanding would benefit from widespread use of:
1. Current UK State pension as a % of average or median? earnings.
2. That % being publicised in a table of other countries in geographical Europe.
3. The estimated time it would take “triple lock” to reach a specific target %.
4. The cost of doing that by a simple cash uplift now, in 1/2/3/4 or 5 years.
5. The current cost of higher rate pension tax relief.
6. Number of people drawing pension credit, and numbers estimated to be eligible for it.
7. Cost of state provided occupational pensions for those who advise on such things and make the decisions.
8. Hyperlinks to stores selling pitchforks.
In my dreams, the Sunday politics broadcasts do a big splash on this with lots of charts and Jeremy Vine running around a VR studio making it all clear. Then the Chancellor is interviewed by an AI version of Brian Redhead and asked to justify the current system.
If anyone has spare time to do some research…..I am committed to writing a book
Mind you, now you ask, I might take a look
I have made progress with this.
Wasn’t the triple lock a policy demand from the Lib Dem when they formed a coalition govt with the tories?
just don’t like Osbourne getting credit
My letter about the triple lock might be on the Grauniad website tonight
They asked for a link to this site as that’s where my figures came from
Yay!
Here it is
https://www.theguardian.com/money/2026/sep/16/pension-peril-is-it-time-to-unpick-the-triple-lock
Right at the bottom but
Good work, John
Thank you.
[…] commentator Robert J made this observation with regard to the debate over the triple lock on pensions […]