Labour has been urged by Tony Blair’s thinktank to scrap the pensions triple lock amid mounting pressure on government finances.

With the Iran war threatening to derail public spending plans, the Tony Blair Institute (TBI) said the “unaffordable” manifesto pledge to maintain the triple lock should be torn up as part of a wider overhaul of the state pension.

The triple lock guarantees that the basic and new state pensions will rise every April by whichever is highest: inflation, average wage growth or 2.5%.

Saying change was “unavoidable” as Britain’s steadily ageing population drove up the cost of the policy, the thinktank suggested a pre-election pact should be made between the main political parties to ensure the triple lock did not continue past the next general election.

Introduced by George Osborne, under the Conservative-Liberal Democrat coalition in 2010, in recent years, the policy has added billions of pounds to annual government spending amid inflation shocks from the Covid pandemic and Russia’s invasion of Ukraine.

As the Middle East conflict triggers yet more inflation and pushes up government borrowing costs, Rachel Reeves has said “difficult choices” will be needed to fund energy support for households and an increase in defence spending.

However, the chancellor told the Guardian on the sidelines of the International Monetary Fund spring meetings in Washington last month that she was not prepared to drop the triple lock. “We made a commitment in our manifesto to the triple lock and we’re not changing that,” she said.

Inflation is expected to rise sharply this year amid soaring global energy prices, heaping pressure on households already struggling with a cost of living crisis. Higher headline inflation will also force the government into higher annual pensions and benefits increases next year.

In its report, the TBI said Britain’s ageing population meant urgent changes to the pensions system were required. Highlighting an expected increase from 12.6 million pensioners now to almost 19 million by 2070, it said, on current policy, this would increase total state spending on pensions from 5% of gross domestic product to 7.8% – an extra £85bn a year in today’s money.

“That would mean higher taxes, deeper pressure on other public services or both,” the thinktank said.

The former Labour prime minister’s organisation, which has close links to government, argued that more comprehensive changes were also required, including a replacement for the current state pension.

It said ministers could develop a new “lifespan fund” that would replace the basic and new state pensions. Under the proposal, individuals would contribute to a notional fund that would provide up to 20 years of support. People could bring forward some of their entitlement before retirement, under rules with safeguards, to use during unemployment, retraining or caring. Access to support would also no longer be tied to a single state pension age, but would become personalised.

Thomas Smith, the director of economic policy at the TBI, said: “Britain’s state pension system was built for a different era. We can’t keep pouring money into a system that is increasingly unaffordable. Pension spending must be contained and that means the triple lock cannot continue after the next election.

“Ending it will require political leadership from all parties – but that should only be the first step. Real reform must also build a better system: one that is fairer, more flexible and designed for how people live today.”

A spokesperson for the Department for Work and Pensions said: “Supporting pensioners is a priority and our commitment to the triple lock for the rest of this parliament means millions of pensioners will see their yearly state pension rise by up to £2,100.

“The Pensions Commission is already examining how we can ensure secure retirements for tomorrow’s pensioners and for those that have not reached state pension age but need extra support, a range of options such as Universal Credit and other means-tested and disability-related benefits are available.”