The state pension’s triple lock is both affordable and well secured for years to come, says former MP JOHN REDWOOD – here’s how…

John Redwood was MP for Wokingham from 1987 to 2024, representing the Conservative Party. He is now a member of the House of Lords.

The triple lock promise means that the state pension will be increased by the highest of 50% every year inflationaverage profit growth of 2.5 percent.

The total state pension currently stands at £241.30 per week and is expected to rise to around £251 per week and above £13,000 per year from next spring.

That’s because the latest wage growth rate was 4.1 percent, but the most recent inflation rate was 2.6 percent – and the earnings figure released on Tuesday, September 15, is likely to tie the knot.

I have some rare good news about government finances. The triple lock on the AOW is both affordable and well insured for the coming years.

Rachel Reeves’ decision to impose an increase in employers’ national insurance contributions (NICs) saw to that.

I and many others opposed the increase because it was very damaging to business and employment. It helped drive up unemployment and eliminate vacancies and new jobs.

It also meant that such large sums of money were put into the National Insurance Fund that the fund did not have to worry about being able to pay out state pensions in the coming years.

It does mean that Rachel Reeves’ decision not only allows the National Insurance Fund to pay pensions with the annual increases, but also gives the Fund a large and growing cash reserve.

Most commenters were unable to explain how NICs work and what they are for.

National Insurance revenues are not deposited into the Treasury’s general account to be spent on government priorities like other taxes.

About 24 percent of the money is sent to the NHS according to a formula set out in law that provides for varying percentages of the different types of NI payments that can be used for healthcare.

The rest of the money is deposited into the National Insurance Fund. Many mention tax NICs and obscure their purpose.

It is only when you call them NICs that it becomes clear that they are the way to pay for contributory state pensions.

The government calls the state pension a social benefit. This confuses people about what happens to the money.

The National Insurance Fund receives the premiums and pays premium-based benefits, which now almost entirely constitute the state pension.

A person’s pension is a right based on past contributions. The NI fund must draw up a balance sheet every year, with the money largely reflecting the cost of pensions paid.

It is a fund, but not an endowment fund to hold your individual savings for you. It is a pay-as-you-go fund.

If you work, you contribute to pay for your parents’ pension, and if you work, your children contribute to pay for your pension.

If contributions exceed costs in any year, the Fund will replenish its reserves. If costs exceed revenues, the Treasury may have to supplement the Fund with a subsidy from general taxes.

This last happened in 2015-2016.

The State Actuary reports annually on the Fund and assesses its solvency.

The latest report states that the Fund maintains a surplus of £101 billion, more than the minimum required by the actuary as a reserve to meet future payments.

This surplus is expected to rise to £164 billion by 2031, as the Fund should generate an annual surplus of around £15 billion in each of the next four years.

This is of course the direct result of Reeves’ increase in contributions.

It assumes the continuation of triple-lock upgrades. The actuary would probably accept a surplus of half that level as prudent.

The contribution principle is an important principle, where people sometimes have to top up their contributions to get a full pension, and work enough years to qualify for this. All this is laid down in legislation.

The government could try to change the law to plunder the Fund and reduce the growing surplus.

It could pass a law that would end the contributory principle and convert pensions into social benefits for the elderly, regardless of their work and payment history.

No government has done this because it understands the popular support for a fund and payment-based system for most people’s state pension.

Those who want to end the triple lock would simply increase the surplus in the Fund, unless they were willing to change the general national insurance system and the law.

They should abolish the Fund and make NICs a tax like any other, paid into the Treasury’s general accounts.

They should decide the basis for future pension payments.

The law should say who is entitled to it, how much the pension would be and by how much it would be increased.

I doubt that Mr. Burnham is willing to do this one way or another.

I am in favor of retaining a contributory pension and am pleased that the triple lock is affordable, even at a lower NI rate.