The shadow pensions minister has warned Andy Burnham that he will “live to regret” scrapping the triple lock on the state pension to pay for his new National Care Service.

Speaking at the annual Pensions UK conference on Wednesday, Helen Whately argued Burnham has created a new financial challenge through his commitment to drop the triple lock in Labour’s next manifesto.

Under the system, the state pension would increase each year by either inflation or 2.5 per cent depending on which is highest. This removes the possibility of the pensions spiking from volatile wage growth.

Whately has previously claimed the prime minister is “desperate for cash” to pay for the service, and that slashing the state pension will not bring in enough capital.

Analysis published by the Department for Work and Pensions also showed that, in cash terms, the government will save £15bn a year by 2040. When changes in cash values are accounted for due to inflation, the savings will only come to about £11bn. 

She reaffirmed the Conservative’s stance of maintaining the triple lock if they returned to government, but refused to confirm a reversal to Labour’s changes to salary sacrifice and inheritance tax (IHT) on pensions.

From April 2027, pensions will fall into the scope of IHT, while salary sacrifice contributions will be capped at £2,000 per year.

Improve retirement outcomes

Whately instead urged the government to cut regulation and reduce the tax burden on businesses in order to improve pension outcomes and retirement adequacy, leaving people with enough capital to fund private care in later life.

“The best way to be able to afford better pension provision is to have an economy that’s firing on all cylinders and people being paid better and employers having more margin to address all these problems,” she said.

She added that the burden of the cost of living on both employers and workers was a “huge problem” in saving for retirement, as people are forced to allocate capital to short term issues instead, such as rent.

Whately said: “Lessen the tax burden on businesses…lessen the regulatory burden on businesses.

“And government gets out of the way so that it becomes possible to actually make some money in this country.”

Pension speculation

Whately also warned Healey not to introduce tax incentives as a “bargaining chip” to mandate investment in UK assets in the upcoming Autumn Budget.

“Pension tax relief is not a loophole. It is a vital feature of our pension system. It should not become a bargaining chip to secure the investment decisions ministers want,” she said.

Speculation surrounding changes to pension tax relief has spiralled in the run up to Healey’s maiden Budget on 28 October, including fears the government will only allow pension fund tax benefits if Brits invest a certain amount in the domestic stock market.

The pension industry has warned Healey not to allow pension tax speculation to go “unchecked” in the run up to the Budget, after rumours led savers to pull millions from pension pots last year.

UK savers pulled £91bn from their pension pots before last year’s Autumn Budget as they looked to dodge Labour’s tax raid, according to the Financial Conduct Authority.