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Is the pensions triple lock under threat?

Emma Lunn
Written By:
Emma Lunn

The Government is considering a one-off break from the triple lock, according to press reports.

Such a move could save the Treasury an estimated £1bn by preventing a bumper 8.5% increase in the state pension next year.

According to The Guardian, the Government is considering stripping out public sector bonuses that were awarded to workers to prevent strikes over the summer from the triple lock calculation used to determine the annual rise in pensions. With this figure included, pay growth stands at 8.5%.

One alternative is to use an earnings link that tracks the underlying level of pay growth, which could mean pensions increasing at the lower level of 7.8% from April 2024.

What is the pensions triple lock?

The pension triple lock is a mechanism by which the state pension is uplifted for the millions of people in retirement.

It guarantees that the state pension rises each year by the highest of:

  • Average earnings growth between May and July (total pay including bonuses)
  • Consumer Prices Index (CPI) measure of inflation in the year to September, published in October by the ONS
  • Or 2.5%

The reason behind the guarantee is to ensure that pensioners, particularly those who rely on the state pension as their only source of income, could afford the cost of living and keep pace with inflation and rising wages.

What’s the problem?

Wage data issued yesterday showed annual growth in employees’ average total pay (including bonuses) in May to July 2023 was 8.5%. This total annual growth rate is affected by the NHS and Civil Service one-off payments made in June and July 2023.

Using this figure to calculate state pension payments would mean the annual state pension would rise from about £10,600 to about £11,502. The Institute for Fiscal Studies (IFS) said the figures meant the state pension would cost £2bn more than budgeted for in 2024–25.

Using the underlying wage growth figure of 7.8% would see the state pension rise to about £11,427 a year, and save the Treasury about £1bn.

What do the experts say?

Alice Guy, head of pensions and savings at Interactive Investor, said: “With final salary pensions less common, workers are increasingly reliant on the state pension as defined contribution pensions are not guaranteed and are affected by stock market volatility. Having a guaranteed element to your pension income is extremely valuable and the state pension is the jewel in the crown of our retirement system.

“The triple lock was introduced in 2011 to correct years of falling state pension incomes compared to average wages. It was designed to lift millions of pensioners out of poverty as pensions began to catch up with average wages.

“The state pension is extremely precious to millions of pensioners and the triple lock shouldn’t be tampered with lightly.”

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “The triple lock has played a role in supporting pensioner incomes and protecting them from miserly increases in their state pension, but the time is coming to assess whether it remains the best approach with a review into the state pension and the triple lock’s role within it.”