What is a triple lock on a state pension?

7 minutes

The triple lock on the state pension offers protection to retirees against the dangers of inflation. When you retire, it guarantees your state pension payments will rise each year at a rate that keeps pace with the cost of living.

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 your 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, your state pension should currently 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. 

In the 2021/22 financial year, you can receive a maximum weekly payment of £179.60 under the new state pension. The most you can be paid under the basic state pension is £137.60 a week.

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.

That’s where the triple lock guarantee on the state pension comes in. Whether you receive the new or basic state pension, 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. 

The introduction of a new double lock system instead shouldn’t have too much of an impact, as the annual increase in the state pension would still match the official inflation rate. 

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.

Build your pension saving confidence

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 callback from one of our friendly advisers today.