The prime minister says dropping the pension’s annual earnings link from 2030 would save £15bn a year by the end of the 2030s. The Institute for Fiscal Studies expects about £4bn by the mid-2030s, and says it could be nothing.
Andy Burnham has proposed that the state pension stop rising automatically with average earnings from April 2030, and that the money saved help pay for a National Care Service in England, free at the point of use. He announced the plan in his Labour conference speech on 29 September and admitted he might “pay a political price”.6 Downing Street says the change would save £15bn a year by the end of the 2030s, about £11bn in today’s money, but has not said how it reached the figure.3
This piece is running three weeks on because the sums have still not been published and the Budget is eight days away. Labour’s Lucy Powell said the Treasury would publish costings “in due course”, and none had been found by 20 October.4 The IFS, the independent fiscal think tank, has done the arithmetic itself. It expects the saving to be small at first, about £4bn a year in today’s money by 2034–35, and says it could be nothing if earnings growth is strong.3 Jonathan Cribb of the IFS said the reform “will not be the answer to funding universal social care”.3
Since 2011 the triple lock has raised the pension each April by the highest of inflation, average earnings growth or 2.5%. Because rises are never clawed back, the pension drifts above earnings over time. The IFS puts the extra cost at about £16bn a year in 2026–27 against uprating with earnings alone.3 The Resolution Foundation, a think tank, estimates the basic state pension is about 11% higher than an earnings link would have made it since 2012, and that state pension spending is now about £154bn, 5% of GDP and 11% of all government spending.2
The long-run pressure is larger. The Office for Budget Responsibility (OBR) projects state pension spending rising from about 5% of GDP to around 9% by 2075–76 if the triple lock continues, against around 7% if the pension rose only with earnings.1 The Resolution Foundation had urged a “smoothed” earnings link in June, so the direction of the reform is not new; the IFS called the new rule “much improved” because it ends the permanent ratchet.24 What is new is the claim that the saving can fund a care system.
The Resolution Foundation also found that pensioners’ living standards have grown about three times as fast as non-pensioners’ over two decades, much of it before the lock began, and that pensioner poverty is 2.3 percentage points higher than in 2011–12 despite it. It adds that the lock makes the pension’s value more volatile, because it rises most in unstable years.2
The care side of the equation is where the gap shows. The Health Foundation estimates that a lifetime cap on care costs would cost about £4bn a year, Scottish-style free personal care about £7.5bn, and a universal, comprehensive system in England about £18.5bn a year extra by 2036.3 The government says direct care costs would be covered but not accommodation costs in care homes, which is wider than a lifetime cap but narrower than a full system.3 On the IFS’s numbers the pension saving would match the cost of a lifetime cap by the mid-2030s, not more; on the government’s own figure, it would cover free personal care but not a universal system.
For pensioners, nothing changes before April 2030; the triple lock stays for this parliament, as Labour’s 2024 manifesto promised, and the full new state pension, £241.30 a week, would be held at its value against earnings over time, the government says.45 Ministers say the full new pension is worth roughly 30% of median earnings and the revised rule would broadly maintain that.6 For working-age taxpayers, the question is how much of the care bill falls to them instead. Analysts quoted by the Press Association say a future government might need tax rises or cuts elsewhere to close the gap, and the government says its plan will not be funded by borrowing.36
Burnham says the reform is “fully funded and not through borrowing”, and that pensioners will always share in rising national prosperity.6 Rachel Vahey of the investment platform AJ Bell calls the idea that the change alone could bankroll social care “simply fantasy” because savings build slowly while care costs are immediate.5 That part is empirical, and the IFS evidence leans her way for the next parliament. The Conservatives say the plan makes tax rises inevitable and will keep the triple lock in their manifesto; Reform UK accuses Burnham of targeting the elderly; the Liberal Democrats object to paying for care from poorer pensioners’ incomes and to the delay until after the election; Unite wants wealth taxes instead.67 Those are value judgements that no estimate settles.
How the new earnings catch-up would work in detail, which determines the savings; the government has not published it. How Downing Street reached £15bn. What the National Care Service would cover and cost. The IFS figure rests on future earnings and inflation, which the IFS calls very uncertain.
Chancellor John Healey delivers his Budget on 28 October with a new OBR forecast; Treasury costings of the pension change have been promised without a date.4 The Pensions Commission is due to make final recommendations in spring 2027.5 The next general election must be held by August 2029, and the change is expected to be written into Labour’s manifesto, so that voters can decide on it before it starts in April 2030.67