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The State Pension Triple Lock: What It Is and How It Affects You

Updated: Aug 27

The triple lock on the state pension has become an integral part of British political life since it was introduced in 2010 under the coalition government.


The policy involves increasing the basic state pension each year by the highest of either inflation, average earnings or 2.5%. But what exactly does that mean?

The State Pension Triple Lock

And how does it affect you? Let’s take a closer look at what this means for retirees in Britain and how it may change in the future.



The Triple Lock Introduction

The state pension is a UK government-funded retirement income.


The triple lock guarantees that the state pension will rise by at least either;


  • 2.5% each year,

  • average earnings growth, or

  • Consumer Price Index (CPI) inflation


whichever is the highest.


It should be noted that the Government has already backtracked on this promise in 2021 when they didn't increase the state pension by the highest measure at the time, which was average earnings as they said the figures were distorted by the pandemic recovery.


This policy was introduced in 2010 and is currently in effect until 2024 the end of the next Parliament. For many people, the state pension is a vital source of income in retirement.


However, the triple lock does have some drawbacks. Essentially, the triple lock means that as prices go up, so do pensions, which is a good thing for pensioners, but not for the Government who promised them, or the working public who have to pay for them.


This open ended promise is very expensive as will be borne out in 2022/2023 when the state pension is likely to increase by circa 10% as CPI inflation is running rampant in the UK right now. This will mean the UK state pension is worth over £10,000 for the first time ever.


Great news for pensioners if their pensions keep up with cost of living increases and don't get left behind. Since its introduction in 2010, there has been an increase to all three elements - earnings growth; price growth; and pensioner indexation - which together provide some certainty for today’s retirees and those approaching retirement age.


But for those still in work, someone has to pay for it, and it will be them/you, so expect further NI and tax increases in the future!


Features of the Triple Lock

The triple lock guarantees that pensions will increase by at least 2.5% per year, or in line with the Consumer Price Index (CPI), or average earnings, whichever is higher. This means that pensioners will always see their incomes rise in real terms, regardless of inflationary pressures at the time, for example the low period of inflation for many years prior to 2021.


The policy has been widely praised by pensioner groups, as it ensures that their retirement incomes keep pace with the cost of living, and sometimes exceeds it.


However, many economists have criticised the triple lock for worsening Britain’s fiscal position. They argue that it was introduced at a time when interest rates were low and deficits high; therefore, this policy could not be afforded indefinitely without further increases in taxation.


Critics of the triple lock also believe that pensions should be indexed to an index other than CPI – for example average earnings – so that they can reflect changes in wages over time.


Triple Lock Impact on Public Spending and Taxation

As noted above, the promise of increasing pensions by either at least 2.5%, average earnings or CPI, whichever is the higher each year regardless of inflation or other economic conditions, is a very expensive promise to make.


And whilst the policy has been in place since 2010, and has been credited with helping to reduce poverty among the elderly, some critics argue that the triple lock is unaffordable and unsustainable in the long term, and that it puts too much pressure on public finances, which ultimately leads to tax rises.


Impact on Private Retirement Saving

The state pension triple lock government promise means that, over time, the value of the state pension will keep pace with inflation or higher. However, there have been calls to scrap the policy, as it is seen as unsustainable in the long term.


Private retirement saving is likely to be affected if the triple lock is scrapped, as pensioners will need to rely more on their own savings to maintain their standard of living in retirement. This would be good news for retirement planning firms and savings institutions, but not for the retiree who would need to fork out even more cash for their later years.


Issues of Intergenerational Equity

The state pension triple lock has been controversial because it disproportionately benefits older people, who are more likely to be retired and have a higher income than younger people. Critics argue that this policy is unfair to younger generations, who will have to pay higher taxes to fund the state pension in the future.


Supporters of the policy argue that it is necessary to ensure that older people can maintain their standard of living in retirement. The triple lock is currently scheduled to end in 2024, but there has been debate about whether or not it should be extended.


The Triple Lock Concluding Remarks

The state pension triple lock is a government policy that protects the value of state pensions in the UK. The triple lock guarantees that pensions will rise by at least 2.5% each year, or in line with inflation or average earnings, whichever is higher. This policy has been in place since 2010 and has been credited with helping to reduce pensioner poverty.


However, as noted above it is VERY expensive and critics argue that the triple lock is unsustainable in the long term and should be scrapped. The government has not yet announced any plans to change the policy, but it is something that could be under review in the near future.


There are arguments both for and against the continued use of the triple lock mechanism, which we will explore now.


A lot depends on how confident the government is about UK economic growth over the next few years. Some people believe that continuing to guarantee increases in pensions through using this mechanism is a worthwhile investment because they expect things to turn around eventually.


On the other hand, others say that continuing with this level of spending without considering alternatives would be reckless given current projections for low economic growth into 2024 and beyond - especially if there's no increase in tax revenue as a result of Brexit-related declines in wages and the recession.




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