Triple lock to stay: how will it affect your pension?
Triple lock looks set to stay, but what it is and what does it mean for your retirement income?
In its 2019 manifesto the Conservative Party promised to uphold the triple lock, which ensures the state pension is increased each year by either the rate of inflation, the rise in average earnings or 2.5% – whichever is higher. With inflation rising rapidly, the future of triple lock has been questioned over the years.
On 17 November chancellor Jeremy Hunt confirmed the party was keeping its promise and increasing state pensions in line with last month’s inflation figure of 10.1%. But even this figure is outdated now; the latest data from the Office for National Statistics showed UK inflation is running at a 41-year high of 11.1%.
So what does this mean for pensioners, and how much will the state pension rise by?
Pensions triple lock reinstated from April 2023
Much to the dismay of many pensioners, in April of this year the government suspended the state pension triple lock due to the impact of the pandemic, and increased the state pension by 3.1% instead of 8.3%, the rate inflation was running at the time.
There had been reports the government was considering scrapping the triple lock because of the cost to public finances, but it has now been confirmed retirees are getting a 10.1% increase to their state pension from April, which translates into an £870 increase a year. That’s the biggest ever cash increase to the state pension. It takes the annual pension to £10,600.20.
Pension credit, for pensioners on the lowest incomes, will also increase by 10.1%, worth up to £1,470 for a couple and £960 for a single pensioner. Finally, pensioners will receive a one-off £300 cost of living payment.
But the increase won’t come into effect until April 2023, “so there is a tough winter ahead”, says Helen Morrissey, senior pensions analyst at Hargreaves Lansdown.
“The reinstatement of the triple lock after its suspension last year will cool some of the discussion around its long-term viability for a while, but with a review of state pension age due to be published soon, now is the time to carry out a comprehensive review of the state pension to ensure it best helps those who need it most, both now and into the future,” Morrissey added.
However, pension increases coupled with tax freezes on income tax and national insurance might push pensioners over these thresholds and result in them paying more tax. Inflation is still on the rise, too, which will mean pensioners will continue to feel a squeeze on their finances.