State pension triple lock at risk as cost balloons

The cost of the state pension triple lock could be far higher than expected due to record wage growth. Will the government keep the policy in place in 2024?

(Image credit: Getty Images)

The state pension could rise by 8.5% in 2024 thanks to the triple lock policy. 

However, Prime Minister Rishi Sunak has refused to commit to keeping the triple lock in the next manifesto, despite it being Conservative party pledge as the cost spirals. Work and pensions secretary Mel Stride has also said the triple lock is not sustainable long term. 

Even Labour Party leader Keir Starmer has refused to commit to the policy. 

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Amid this confusion, there have been reports suggesting the government may use a lower figure to calculate the state pension’s increase in 2024. 

The state pension increased by 10.1% in 2023, in line with inflation, a far above-average boost compared to previous years. The triple lock ensures the state pension goes up by average wage growth, inflation, or 2.5% – whichever is highest. 

Inflation has fallen to 6.8%, meaning the state pension will likely go up in line with the 8.5% wage growth recorded in the three months to July.  

But will the government really scrap the policy as its cost spirals? 

Will the government keep the triple lock next year? 

Inflation is expected to fall in the coming months, but average earnings growth is on an upward trend and could continue to grow as public sector pay deals are reflected in the figures. 

In light of the rise in wages, there have been reports the government is considering using a different figure to calculate the increase to the state pension next year.  

“Given the impact of one-off payments to NHS and Civil Service workers in swelling the figures, rumours are swirling that the government may opt to use a smaller number instead,” says Helen Morrissey, head of retirement analysis at Hargreaves Lansdown. 

“For instance, stripping out the effect of bonuses could leave the increase at more like 7.8% rather than the current 8.5%.” 

The cost of sticking with the triple lock would be “huge and unpredictable” says Steven Cameron, pensions director at Aegon, but by “twisting” the policy both parties “risk losing the support of swathes of older voters”. 

The cost of the state pension is expected to outweigh combined spending on education, policing and defence over the next two years. 

 Rising cost of the state pension triple lock  

According to the Institute for Financial Studies (IFS), increases to the state pension could cost the government up to £45bn per year by 2050. 

The 8.5% rise in the full new state pension would take it to £11,500 per year – currently it stands at £10,600. 

This increase would cost the government £2bn more than budgeted in 2024-2025, the IFS said.

Calculations from interactive investor II’s show the cost of the state pension triple lock could hit £10bn 2024 - based on the latest wage and inflation figures. This is £4bn higher than the DWP forecast in March.

“The DWP March forecast expected the total state pension cost to rise to £135 billion in the tax year beginning April 2024. But a bumper wage bill for employers has a knock-on impact on the state pension bill which could rise to a total cost of around £138 billion next year. The cost of the triple lock could hit over £10 billion next year, based on ii calculations. The final bill could be lower if inflation or wages fall during July,” says Alice Guy, head of pensions and savings at interactive investor. 

The cost of the state pension triple lock is growing for the government as the population ages. “The current government and Labour party have both committed to the triple lock next year. But the cupboards are bare, with the tax burden at a record level. With an aging population, the triple lock promise is becoming increasingly expensive,” Guy adds. 

Already the state pension age is predicted to rise to 68 by 2040

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Nicole García Mérida

Nic studied for a BA in journalism at Cardiff University, and has an MA in magazine journalism from City University. She joined MoneyWeek in 2019.