The triple-lock safeguard on state pensions is “inherently unsustainable” and should be scrapped, according to a report from MPs.
The Commons Work and Pensions Committee said the triple-lock will worsen an economy which is already heavily “skewed” towards baby boomers and against the younger millennial generation and it should not continue beyond 2020.
Millennials, born between 1981 and 2000, face being the first generation in modern times to be financially worse off than their predecessors, according to the report on intergenerational fairness.
It said rapid house price increases have concentrated wealth in the hands of home owners, leaving many young people who cannot afford to get onto the property ladder paying costly private rents.
And relatively generous pension schemes, such as final salary schemes - which were “commonplace” during the working lives of baby boomers, are now “all but completely closed” for new entrants.
After housing costs are taken into account, average pensioner household incomes now exceed those of working-age households, and children are now twice as likely as pensioners to be living in poverty.
Meanwhile, life expectancy has risen at a time when the large baby boomer cohort, born between 1945 and 1965, are reaching retirement. As the taxes of working people support the retired, the ageing population places a strain on those in work, the report said.
The triple-lock guarantees that the state pension rises by a certain level - which means it increases annually by the highest of average wages, inflation, or 2.5%.
But the committee’s report said: “The triple-lock is inherently unsustainable. In the absence of reform the state pension would inevitably grow at a faster rate than the rewards of work and would account for an ever-greater share of national income. In particular, we find no objective justification for the 2.5% minimum increase.”
It said all parties should seek political consensus on a new earnings link for the state pension before the next general election.
Instead of the triple-lock, the committee proposes the new state pension and basic state pension could be linked to a minimum proportion of average earnings.
Pensioners would also get protection against high inflation reducing their spending power, under the proposed changes. During periods when earnings lag behind price inflation, an above-earnings increase should be applied to protect pensioners against a reduction in the purchasing power of their state pension.
The report said there is a “trade-off” between increasing the amount of state pension that people get and setting the age at which people receive it. Simply increasing the state pension age risks further disadvantaging people who may already be worse off and have lower life expectancies.
Frank Field, chairman of the committee, said: “Home ownership, taken as a given by many in my generation, is out of reach for too many aspiring young people today.
“At the same time as tightening their belts, they are being asked to support a group that has fared relatively well in recent years.
“Millennials face being the first generation to be poorer than their forebears. No party has been immune from chasing the pensioner vote - but at what cost to future generations? Politicians of all stripes must accept some responsibility for these trends, and we must act together now to address them.”
The report comes amid mounting pressure for politicians to look again at the triple-lock.
Former pensions minister Baroness Altmann recently proposed a double-lock whereby either state pensions are increased in line with prices or with earnings.
She told the Observer that the triple-lock is a “totemic policy that is easy for politicians to trumpet”.
Former work and pensions secretary Iain Duncan Smith also recently told the BBC’s Sunday Politics show that the triple-lock should be ditched, saying there was a real danger of an imbalance between the generations.
The committee said pensioners have been protected from public spending cuts that have largely been felt by younger groups, and that universal benefits like the winter fuel payment should “not be off limits” when governments seek savings.
Dot Gibson, general secretary of the National Pensioners Convention, said: “Whilst the report makes it clear that no single generation has stolen the future of their successors, there is little doubt that today’s pensioners are still being blamed for the problems faced by today’s younger generations.
“This phoney conflict is being used as a smokescreen in order to cut back on the welfare state. The housing crisis hasn’t been caused by pensioners, but because in Britain we sold off council houses, we haven’t been building enough affordable homes, wages and employment are low and insecure and an economy built on house-price inflation simply cannot be sustained. This is what needs to be addressed.”