What is the triple lock on State Pensions?

Oli West

by , Senior copywriter

at PensionBee

20 Oct 2021 /  

Three padlocks chained to a metal fence

The pension triple lock system is a legally binding measure that requires the UK Government to increase the State Pension in line with the largest of three figures:

  • the rate of inflation
  • the increase in average earnings
  • 2.5%

For example, if average earnings and inflation were to only increase by 2%, the State Pension would still rise by 2.5% because of the 2.5% guarantee. But if average earnings were to increase by 3%, the State Pension would also increase by 3% because this is greater than the 2.5% guarantee.

The State Pension triple lock is designed so that the State Pension’s value doesn’t decrease in real terms, protecting pensioners’ spending power. However, its fairness has come under criticism as it allows the wealth of pensioners to increase even if the working populations’ salaries stay the same or fall.

September 2021 update

On 8th September 2021 the government announced that it would be suspending the triple lock on state pensions for one year. The decision was made to prevent 2022’s State Pension payments becoming too expensive, following an estimated 8% rise in the average salary (worth £4 billion in additional pension payments). The Government’s expected to announce the agreed growth figure in October 2021, and it seems like there’s a strong chance of it rising by at least 2.5%.

How much is the State Pension, currently?

As of the 2021/22 tax year, the State Pension pays out a maximum of £179.60 per week (£9,339.20 per year). To receive the maximum amount, you’ll need to have paid National Insurance Contributions for 35 years. To receive the minimum State Pension, you’ll need to have paid in for 10 years.

For more, read How much is the State Pension?

When did the government introduce the triple lock pension?

The State Pension triple lock guarantee was proposed by the Conservative-Liberal Democrat coalition in 2010. It was introduced to protect the State Pension and ensure that pensioners’ income wouldn’t be overshadowed by the rising cost of living.

Since its introduction, the triple lock system has come under a lot of scrutiny as it’s proven to be costly to the government and UK taxpayer. There has often been talk about either changing or completely removing the triple lock on state pensions. In recent years, excluding 2019 and 2021, average earnings and price inflation have been lower, meaning the State Pension has tended to increase by the minimum 2.5% guarantee.

With concerns over the long-term affordability of the triple lock, it’s been a regular topic of conversation within the government. And with an expected rise in the number of pensioners over the next few decades, the debate is likely to continue for the foreseeable future.

Could coronavirus affect the triple lock guarantee?

The coronavirus outbreak has put major financial pressure on the Treasury, which has promoted more speculation about the affordability of future State Pension increases. This is why there have been calls for Rishi Sunak, Chancellor of the Exchequer, to either break or suspend the triple lock pledge, amid fears it will be too expensive to maintain following the crisis. Although it was announced in the Summer Statement there won’t be any immediate changes to the triple lock guarantee, changes are still expected to be made in the Autumn Budget (see latest update, above).

There was a huge increase in the number of applicants for the UK furlough scheme due to coronavirus, with the government eventually supporting over nine million workers, in comparison to three million in April 2020. The furlough scheme means that the government pays 80% of a worker’s wages, up to £2,500 a month.

When the furlough scheme ends in October 2021, there will be a huge spike in average earnings as workers will receive 100% of their pay again - as well as the possibility of low-paid jobs disappearing. The Office for Budget Responsibility has estimated that once the scheme ends, there could be an 18% rise in average earnings in 2021.

Those currently receiving the State Pension will be protected from the current drop in average earnings, and would stand to benefit from the spike in wages next year.

Based on predictions from the Office for Budget Responsibility, keeping the triple lock guarantee for 2021 and 2022 would have cost over £34 billion more than if the State Pension was to increase in line with inflation.

How could the pension triple lock changes affect me?

If you’re currently receiving the State Pension, the removal of the triple lock system isn’t likely to have much of an impact on your retirement income, especially if it’s just replaced with the suggested double lock. However, if changed to a single lock guarantee, linked to either average earnings or price inflation, then this could have a more noticeable impact on the State Pension’s value over the medium to long-term.

Those most likely to feel the impact if the triple lock on state pensions is removed, will be those who are yet to retire. The State Pension is already unlikely to be a sufficient retirement income on its own, but any changes will mean that younger generations will need to make their own provisions for their old age, which isn’t always possible. The State Pension should be seen as an additional income to private pensions, and not the other way round.

Get started with PensionBee today and let us help you take control of your retirement. Combine your old pensions into a single, low-cost plan with one clear balance you can check at any time.

As always, we’d love to hear your feedback, so leave your comments below or get in touch with the team on Twitter!

Risk warning: As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

Be pension confident!

Combine your old pension pots into one new online plan. It takes just 5 minutes to sign up.

Get started

Mobile PensionBee analytics chart
Mobile PensionBee analytics chart
Apple Store logo Google Store logo