The state pension triple lock is unnecessary and could place an unfair burden on future working generations, the Institute and Faculty of Actuaries (IFoA) has argued.
In response to the Work and Pensions Select Committee's inquiry on intergenerational fairness in pension provision, the IFoA said maintaining the triple lock would mean that retirement income would increase relative to the working age population.
President-elect Colin Wilson said the triple lock is not necessary if the level of the new state pension has been properly set. It was important as a temporary measure after the link of state pension to earnings was restored in getting it to a level that is fair in relation to wages, he explained.
"However, based on current economic trends, the triple lock will increase expenditure on the state pension as a share of gross domestic product over the long term and will create an unnecessary drain on the future workforce."
He added that to achieve fairness between generations, the current workforce should not be "unnecessarily burdened" with funding state benefits, but rather incentivised to save.
"It is vital for the government to encourage saving, however, consideration must also be given to whether younger workers in particular are likely to have sufficient wealth to do so while meeting their immediate needs," Wilson said.
"Striking the right balance between state and self-funding will be important in creating a system that is sustainable over the long term. The current structure has created a ticking time bomb that the Government needs to address to save people depleting their retirement savings unexpectedly to pay for care and then needing to fall back on the state," he added.
The IFoA stressed that individuals needed to understand their life expectancy and likelihood of living to much older ages, as well as the level of savings they may need for their retirement.
Moving to a system that taxes pension savings on the way in - something that has been considered by the government - would effectively bring forward tax revenues from the current workforce who will be future pensioners, it said. This group will already be facing the largest bills for pensions, and health and social care, it warned.
The IFoA said constant tinkering had created a lack of stability in pension provision and a lack of trust that the benefits available for current pensioners would be available for future generations. It said this savings barrier should be addressed to sustain the current pension framework.
IFoA's four main priorities the government needs to address to achieve intergenerational fairness:
- Both the pension and social care framework must be sustainable in the long term.
- There must be clarity on the role of the state.
- People need to understand the likelihood of living to much older ages, not just their average life expectancy.
- People need to understand the level of saving they will need to meet their needs in retirement.
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