The number of pensioners facing poverty in retirement could more than double if the so-called "triple lock" were removed and state pension rises were linked only to consumer prices, figures from the Department for Work and Pensions revealed.
A response from the DWP to a freedom of information request by consultancy LCP showed that 11.7mn future pensioners -- almost one in three of today's workers -- would receive a pension income lower than the minimum retirement living standard if the state pension were linked to inflation.
Under the triple lock, which ensures the state pension rises by the highest of average earnings, inflation and 2.5 per cent, that number would fall to 4.6mn.
The minimum standard, set by trade body Pensions UK, is currently a total pension income of £13,400 per year for an individual or £21,600 for a couple.
If the state pension were linked to average earnings rather than inflation, 6mn people would be on course to receive an income lower than the minimum standard.
The figures highlight the extent of inadequate long-term savings across the UK and come as the government is considering restricting salary sacrifice pension tax benefits in the Budget. Policymakers are also under pressure to break the triple lock owing to its spiralling costs.
Sir Steve Webb, partner at consultancy LCP, said that the figures "reveal that the true state of under-saving for retirement in Britain is far greater than has previously been admitted".
"Very few people expect the triple lock to continue for another 50 years, yet this is the basis on which the government has so far published estimates . . . against this backdrop, the chancellor should be taking measures in the Budget to boost pension saving, not undermine it," Webb added.
In the Budget next week, the government is capping the amount of money that can be paid into a pension salary sacrifice scheme without paying national insurance at £2,000 a year. Above this, the usual NI rates would apply -- 15 per cent for employers and 8 per cent for employees on salaries of less than £50,270 and 2 per cent on income above that.
The government estimates the change would raise £2bn, but pension experts warn that many employers may respond by lowering the amount they pay into pensions. A survey from the Association of British Insurers last week found that if the tax benefits of salary sacrifice schemes were capped, it would undermine confidence in the savings system.
DWP's FOI response also showed there would be a dramatic increase in the number who would fail to reach their "target replacement rate" in retirement if the triple lock were broken -- measured by earnings of two-thirds of pre-retirement income for the median earner.
Under the triple lock, 14.6mn people currently fail to meet their target replacement rate. That would rise to 19mn if the state pension were only linked to average earnings, and 26.1mn if it were linked to inflation, as was the policy until 2010.
The government spends about 5 per cent of GDP on state pension benefits, up from 3.5 per cent at the turn of the century. The Office for Budget Responsibility, the UK's fiscal watchdog, has forecast that based on current policy, total state pension spending could surge to 8 per cent of GDP by 2073, or more if growth continues to stagnate.