Proactive Investors - The Organization for Economic Cooperation and Development (OECD) has called for the UK to reform the triple lock policy on pensions.
The so-called triple lock policy was introduced by the coalition government in 2010 to ensure the value of the state pension was not less than the cost of living or income.
It is a guarantee to ensure that the state pension increases every year by whichever is higher: inflation, average earnings, or 2.5%.
In its latest economic outlook, the OECD said that in the UK: “Ageing and high inflation coupled with the triple lock will push up pension spending by about 0.8% of GDP by fiscal year 2027/28.”
It added that this was more than the amount of public investment, as a percentage of GDP, that is needed to decarbonise power of 0.5%, or to ensure the uptake of electric vehicles, of 0.4%.
Higher debt interest has eroded fiscal headroom, and according to the economic body, maintaining and strengthening “current fiscal efforts” will be essential due to the “challenging backdrop of high borrowing and debt”.
Reforming the triple lock policy could help to ease the diminishing of the fiscal headroom in the UK economy, the OECD said.
“Reforming the costly triple lock uprating of state pensions would help, by indexing pensions to an average of CPI and wage inflation, and by providing direct transfers to poor pensioners to mitigate poverty risks,” it said in the report.
“Delivering on planned supply side reforms to reduce labour market inactivity and further reducing policy uncertainty for business investment would also improve fiscal sustainability by raising GDP.”