Is the state pension triple lock on borrowed time? We look at the alternatives

All three major parties have committed to safeguarding the state pension triple lock if they win the general election. But experts say it isn’t sustainable.

Digital image of multicoloured padlocks, with three large red padlocks in the foreground.
(Image credit: Olemedia via Getty Images)

The state pension triple lock has been in focus in recent months, as we race towards a general election on 4 July. 

All three major parties have promised to safeguard the measure, with the Conservatives going a step further in a bid to win the senior vote. Through their ‘triple lock plus’ policy, the party has promised to increase pensioners’ tax-free allowance in line with inflation, wage growth or 2.5% – whichever measure is highest.

The political incentive is clear. Pensioners tend to turn out in force on polling day, so securing their vote can be important in securing victory. However, many experts have warned that the triple lock is unsustainable, and will ultimately need reform. With this in mind, it is less a question of ‘if’ than ‘when’. 

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A briefing paper from the independent Pensions Policy Institute (PPI) has highlighted three alternatives to the triple lock policy. If a future government is ultimately forced to take the bold (and unpopular) decision to scrap the triple lock, it is possible that one of these alternatives will make an appearance. 

We take a closer look at how they compare.

What is the state pension triple lock – and why is it controversial?

The triple lock is a measure that was introduced in 2010 to protect the value of the state pension. The government committed to raising the amount paid out each year in line with whichever measure is highest – inflation, earnings growth, or 2.5%.  

For pensioners, this is a valuable protection. Recipients of the state pension saw their payments increase by 8.5% from April this year given the high rate of inflation. This took the weekly payment to £221.20 for full recipients of the new state pension (up from £203.85). Meanwhile, full recipients of the old state pension saw their weekly payments increase from £156.20 to £169.50.

The downside of the measure is that it is both expensive and, according to many critics, unfair. It is a “divisive policy with younger generations shouldering the ever-burgeoning cost,” says Helen Morrissey, head of retirement analysis at Hargreaves Lansdown. She points to research carried out by her firm, which shows that only 16% of 18-34 year olds would be more likely to vote for a party which pledged to keep the triple lock

The Office for Budget Responsibility (OBR) estimated that the cost of the state pension would amount to £125 billion in 2023/2024 – a whopping sum. Paul Johnson, director of the Institute for Fiscal Studies (IFS), has previously said: “At some point, this triple lock has to come to an end. Let’s actually come to a rational agreed decision about how we’re going to do that.”

What are the alternatives to the state pension triple lock?

“There are a number of options available, aside from maintaining the status quo and keeping the triple lock in place,” according to the PPI. It highlights three alternative routes:

  • Double lock: This option would see the state pension increase in line with either CPI or earnings growth – whichever measure was highest. This would remove the minimum guaranteed 2.5% increase. 
  • Earnings-linked option 1: This route would increase the state pension in line with earnings growth. 
  • Earnings-linked option 2: This option would increase the state pension by an average of CPI and earnings growth. 

The PPI argues that a double lock might be “more palatable for the working population”, as it would reduce the likelihood of the state pension “increasing faster than their own incomes and beyond price rises”. 

Meanwhile, the first earnings-linked option is unlikely to be popular with pensioners, as it leaves them exposed to risk in periods where the rate of inflation outstrips wage increases. However, workers would probably add that they are forced to suffer this risk too.  

The second earnings-linked option, which takes an average of CPI and earnings growth, offers more of a compromise. This route was originally proposed by the Organisation for Economic Co-operation and Development (OECD), who added that direct help could also be given to pensioners on lower incomes.

The PPI says: “This approach aims to reduce spending on the State Pension while directing funds where they are needed the most by reducing the amount paid to the wealthier pensioners and targeting it at those in need.” 

“However, this approach would have the effect of reducing the State Pension as a proportion of average earnings and could play into concerns that younger generations have of the State Pension being eroded before they get to receive it.”

It adds that direct help for low-income pensioners could require means-testing, similar to existing pension credit measures. However, these measures “tend to have low levels of take up”, the institute points out, resulting in wasted benefits.

Funding a comfortable retirement

The key to funding a decent retirement is to start planning early. The state pension will almost certainly not be enough on its own. 

Recent figures from the Pension and Lifetime Savings Association (PLSA) show that a comfortable retirement now costs £43,100 a year for a single-person household, and £59,000 a year for couples. But even the cost of a moderate or basic retirement has shot up. 

If you are worried about the cost of your golden years, there are some important steps you can take to boost your retirement savings. These include upping your contributions to your workplace pension scheme; stashing any surplus income in your retirement pot; and taking advantage of any unused pension allowances.

If you don’t currently qualify for the full state pension, you could also consider buying additional National Insurance credits. Likewise, if you are taking time out of work to help raise children, remember that this counts towards your qualifying years. Claiming child benefit will help you rack up those valuable National Insurance credits.

Katie Williams
Staff Writer

Katie Williams has a background in investment writing and is interested in everything to do with personal finance, investments, and financial news. Before joining the MoneyWeek team, Katie worked as an investment content specialist at Invesco EMEA, a global asset management firm, which she joined as a graduate in 2019. While there, she enjoyed translating complex topics into “easy to understand” stories. She studied English at the University of Cambridge and loves reading, writing and going to the theatre.