Andy Burnham will scrap the state pension triple lock after the next general election and use the savings to build a National Care Service, the prime minister told the Labour Party conference in Liverpool today.

The triple lock guarantees that the state pension rises each year by the highest of average earnings growth, inflation or 2.5 per cent. Burnham said the mechanism would stay in place for the rest of this Parliament, after which pensions would rise in line with prices or by 2.5 per cent a year.

“This change will generate significant savings, which we will use to build up our National Care Service,” Burnham said. He added that older people with little more than the state pension can find themselves paying care charges, and that under his plan “this will no longer happen”.

Business Matters reported in September 2023 that the mechanism was set to deliver an 8.5 per cent rise in the state pension the following April.

Gilt yields edge lower as investors weigh spending plans

Susannah Streeter, chief investment strategist at Wealth Club, said 10-year gilt yields dropped back very slightly as reports of the move circulated, but that bond markets were staying wary.

“There remains nervousness about the scale of the government’s ambitions, when it has so little wriggle room,” she said.

Streeter said investors were also digesting the government’s willingness to remove the ban on public ownership of water companies, which she said could pave the way for a series of renationalisations. According to Wealth Club, any savings from ending the triple lock are likely to be redirected to social care, while government borrowing costs remain high as other large spending plans come into focus.

“Although the Prime Minister does appear to have pulled off the trick of not unnerving markets further, he still faces an uphill battle to keep bond investors on side, especially at a time when the energy crisis risks causing inflationary pressures to pop up across the board,” she said.

Business Matters reported in July that 10-year gilt yields rose to 4.97 per cent after Burnham’s first speech as prime minister, and in May that they had briefly moved above 5 per cent during the Labour leadership crisis that preceded his arrival in Downing Street.

Private pensions under pressure

Streeter said scrapping the triple lock raises questions for people still building their pension pots. If future state pension increases no longer keep pace with earnings, she said, people approaching retirement could find the state pension makes up a smaller proportion of their previous salary.

She noted that the state pension age, which is phased in under a government timetable, has crept higher in recent years and is set to rise again to 68 by 2046.

“These incremental changes don’t mean that people should suddenly assume the State Pension is going to disappear,” she said. “But they do indicate that savers may need to think much more carefully about how much retirement income they need to generate themselves.”

For those with years or decades to go before retirement, Streeter said, the private pension pot may need to do more of the heavy lifting.

Wealth Club set out eight steps for savers. The first is to take the maximum contribution an employer will match through a workplace pension, which Streeter said could otherwise mean leaving part of the overall pay package on the table. Under automatic enrolment, employers must pay a minimum of 3 per cent, within a total minimum contribution of 8 per cent, according to government guidance.

The other steps Wealth Club listed are avoiding gaps in contributions; directing part of any pay rise or bonus into a pension; reviewing charges and performance regularly; keeping a long-term mindset; considering private markets through a SIPP, for experienced investors able to tolerate higher risk and illiquidity; not mistaking tax efficiency for diversification; and keeping accessible savings outside a pension.

“The key question for savers is no longer simply how much they can expect from the State Pension, but how much income they will need in retirement and how much they need to build themselves to fill the gap,” Streeter said.

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