What is the triple lock on a state pension?

7 minutes

The triple lock on the state pension was introduced to offer protection to retirees against the dangers of inflation. However, with the rising cost of living, it's been under constant scrutiny. We take a look at what this means for you when the time comes to retire.

The 'triple lock' is the policy used to set how much the state pension rises each year

The triple lock guarantee was introduced in 2010 by the coalition government, in a bid to provide more peace of mind to the nation’s pensioners. But it’s come at a substantial cost to the British taxpayer, especially when other pensioner benefits are factored in. That means it’s under constant scrutiny by politicians – and the future of the pension triple lock rules is now the subject of much debate.

Read on to learn exactly how the triple lock on the state pension works, why it might change in the years ahead, and what you can do today to safeguard your retirement finances.

The state pension triple lock explained

In a nutshell, the triple lock ensures the annual increase in state pension payments matches or even beats the official rate of inflation. It guarantees this by taking three separate measures into account.

Thanks to the triple lock, the state pension should rise each year by whichever of the following is highest: 

  • Inflation, using the Consumer Prices Index (CPI) gauge
  • Average earnings growth
  • A rate of 2.5%

Following changes in 2016, there are now two main types of state pension: the ‘new’ and ‘basic’ versions. The one you receive depends on when you’re due to reach the official state pension age. Both types are covered by the triple lock guarantee. 

Changes to the state pension triple lock

After the pandemic, there was an artificial rise in average wages to over 8%. As the Chancellor tried to take control of the country's finances, unsurprisingly, the triple lock on state pension payments was suspended for the 2022-23 tax year. This changed to a double lock, meaning that the earnings part of the triple lock was temporarily removed and increased with CPI at 3.1%.

This meant for the 2022/23 financial year, the maximum weekly payment for the new state pension rose to £185.15 and £141.85 a week under the basic state pension.

The Treasury confirmed the triple lock was to be reinstated for state pension payments from April 2023. This meant a rise of over 10.1% to help keep pace with the cost of living in the 2022/2023 financial year.

For the 2024/25 financial year, this means a rise of 8.5%. So, the maximum weekly payment for the new state pension will be £221.20 and £169.50 a week for the basic state pension to continue to help keep up with the cost of living.

What do the triple lock pension rules mean for me?

Inflation can pose a major financial headache once you reach retirement. The cost of living could rise significantly during your retirement years, gradually eroding the value of your pension income in real terms. 

As an example, just think how much inflation has pushed up the prices of petrol and household staples over the past 30 years. If your state pension income remains static throughout your retirement, your spending power could be reduced.

With the triple lock in place, it ensures your payments hold their value against inflation each year. As an added bonus, the triple lock can even mean your state pension rises faster than inflation, if the official CPI reading is below 2.5%.

The only major disadvantage of the triple lock for pensioners is the constant speculation about how and when it might be reformed in the future. The Chancellor faces calls to make it less generous ahead of every Budget announcement, creating uncertainty for anyone receiving the state pension or nearing retirement.

What is the future of the triple lock guarantee?

With the cost of the state pension already running into many billions of pounds, political commentators and think-tanks have cast doubt on the long-term sustainability of the triple lock. Some experts have called for a ‘double lock’ to be introduced in its place – with state pension payments only rising by either the CPI inflation rate or average wage growth. 

The fairness of the current triple lock on the state pension has also faced heavy scrutiny, potentially sparking tensions between different generations. Pressure may start to mount on the Government if state pension increases significantly outpace workers’ wage rises.

What will happen if the triple lock guarantee is removed?

Future generations will likely bear the brunt of any changes to the triple lock pension guarantee. In particular, those planning to leave work in the next five to 10 years might have to quickly recalculate their expected pension income and target retirement age. 

Whilst the triple lock on the state pension was reinstated for the 2023/24 tax year, it is under constance review and the topic of much debate amongst politicians. There’s currently no firm indication that ministers plan to amend or scrap the triple lock on the state pension. 

Protecting your pension income

Whether you’re just starting out in your career or approaching retirement, it’s vital to keep an eye out for any official announcements regarding the triple lock. 

You can also safeguard your retirement finances by reducing your reliance on the state pension in the first place. If you view it more as a top-up for your workplace or personal pension savings, you’ll be shielded from any major rule changes that come into force between now and your retirement. From defined contribution and defined benefit schemes to self-invested personal pensions, there are plenty of options out there.

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Learn more about how our retirement advice service can help you plan for retirement and get your pensions savings ready for the retirement you want to enjoy. You can request a call back from one of our friendly advisers today.