UK Seeks to Remove Triple Lock, Create Sovereign Wealth Funds

In its 2017 manifesto, The UK’s conservative party has called for reducing the so-called triple lock to a double lock, and also proposed creating sovereign wealth funds.

The triple lock was introduced in 2011, and stipulates that the basic state pension will rise annually by the highest of inflation (as measured by the Consumer Price Index), average earnings growth, or 2.5%. Before 2011, the state pension was tied to the retail price index (RPI) measure of inflation, which historically was less than either annual earnings increases or 2.5%.

“By introducing the pensions triple lock and the new state pension, we have lifted the incomes of millions of older people, reducing pensioner poverty to historically low levels,” said the manifesto. “The triple lock has worked: it is now time to set pensions on an even course.”

The Conservatives are calling for the triple lock to expire in 2020, at which time it would introduce a so-called double lock, under which pensions would rise in line with the highest of either the earnings that pay for them, or inflation. The 2.5% option would be eliminated.

Triple lock has been a boon for pension participants, according to The Institute for Fiscal Studies (IFS), a UK-based economic research institute. The IFS has reported that between April 2010 and April 2016, the value of the state pension has been increased by 22.2%, compared to a 7.6% growth in earnings, and growth in prices of 12.3% over the same period. According to IFS, this has pushed the value of the basic state pension up to its highest share of average earnings since 1988. It also said that the increased benefit to pensioners came at the cost of an increase in spending of roughly £6 billion ($7.8 billion) a year in 2015-16.

However, the IFS said that moving from a triple lock to a double lock “does very little to help,” adding that “it is pretty rare” for both average earnings and inflation to be below 2.5%.  “Hence, getting rid of the 2.5% element of the triple lock does little to change the projected long-run generosity of the state pension.”

The Conservatives also said that a central part of its long-term plan for Britain called for the UK to begin creating sovereign wealth funds.

“People have long talked about the need to create UK sovereign wealth funds,” said the manifesto. “We will create a number of such funds, known as Future Britain funds, which will hold in trust the investments of the British people, backing British infrastructure and the British economy.”

It also said that early funds would likely be created out of revenues from shale gas extraction, dormant assets, and the receipts of sale of some public assets.

“We will encourage pension funds with an interest in joining Future Britain funds to do so.”