What is the state pension triple lock?
The state pension triple lock is the promise that the UK's state pension will always rise each year at least in line with the higher of inflation, average wage growth or 2.5%. It's a win-win-win for state pensioners – they always get the highest of the three “locks” – if not for taxpayers. The idea was to address pensioner poverty. From the 1980s to the 2000s, the state pension rose solely in line with price inflation, and in an age of decent wage growth, that meant pensions fell well behind earnings (from 26% of the average wage to just 16% by the 2000s). In 2011, the pension triple lock was introduced to slowly steer state pensions back into line with rises in national living standards.
Has the pension triple lock worked?
Broadly, yes. The state pension triple lock has nudged up the real value of pensions to the point where they are a decent safety net for low earners and a good base for the better-off. It now sits at £241.30 per week (for those qualifying since 2016; or £184.90 for those on the previous system). Since 2011, state pensions have risen 89% in nominal terms. If they'd risen solely in line with inflation, they'd have gone up only 60%, or 66% if in line with wage growth. The UK's (new) state pension of £12,548 a year is not generous compared with some, but it has done its job in helping the state pension keep up with earnings. It is now about 30% of full-time median earnings.
Is the state pension triple lock good for pensioners?
Indeed yes, and not just for the poorest. If a 66-year-old wanted an annuity escalating at 2.5% to 5% a year – a proxy for the pension triple lock – it would cost £215,000-£283,000, says Jonathan Guthrie in the Financial Times. By comparison, the median level of private pension wealth in the 65-74 age band is £146,000. It's unsurprising that the state pension accounts for the bulk of poorer pensioners' income. And only 12% of households rely solely on the state pension. But the really striking thing, says Guthrie, is that even among the richest fifth of UK pensioners, it accounts for almost 30% of single incomes and 16% for couples after housing costs. It's not just nice to have, it's a basic plank of retirement planning for all but the properly wealthy.
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How secure is the pension triple lock?
The government has wriggled out of the pension triple lock only once. After the Covid-19 pandemic, as the furlough scheme unwound and employment jumped, average wage growth was 8.4%, dwarfing the CPI level of 3.1%. Few people begrudged the government's decision to simply pause the lock that year and use inflation instead due to the exceptional circumstances. The following year, though, there was an almost equally massive differential again, but this time the other way round – and the government didn't intervene. In 2022 the post-pandemic inflationary shock was at its height, and in April 2023 pensioners enjoyed a hefty 10.1% rise when wage growth was at 5.4%. It is this kind of exceptional year that has had a disproportionate impact on the fiscal impact of the triple-lock policy – and makes it unsustainable in the long run.
Is the pension triple lock sustainable?
According to the Office for Budget Responsibility, the pension triple lock has pushed up spending on the state pension so that it now costs the government £12 billion more each year (and rising to £15.5 billion by 2030) compared with uprating solely in line with average earnings. Overall, the state pension costs an estimated £146 billion a year in 2025, according to the Institute for Fiscal Studies, which reckons the triple lock could see that grow by another £40 billion annually (in today's terms) by 2050. That matters not just from a budgetary point of view, but in terms of long-term planning as the retired cohort grows and the working-age population shrinks. The cost of the basic state pension, currently 5% of GDP, is set to rise to 8% to 10% over the next four decades. The volatility of the current regime is “insane”, says Tom Calver in The Sunday Times – making it impossible for policymakers to project the true long-term cost.
Why hasn't the pension triple lock been scrapped already?
A bit like the winter-fuel allowance (1997), or inheritance-tax relief on pension pots (2015), the pension triple lock has assumed such totemic significance in the national discourse that one might think it was a permanent feature of the British constitution. Politicians know that it's fiscally unsustainable and admit as much once they are safely out of office. But they are scared of fiddling with it because they fear the backlash from the people most likely to vote – pensioners. Reform UK, which had pledged to abolish it on grounds of fiscal sustainability, recently U-turned, bringing them into line with Labour, Tories and Lib Dems. Oddly, it is only the Greens – the party of fiscal incontinence and wishful thinking – who have a modestly sensible policy of ending the lock (by dropping the 2.5% bit). It's no coincidence that the left-populist party is overwhelmingly supported by young voters and rarely by the elderly.
What is the future of the pension triple lock?
Raising the pension age is one way of cutting costs, but is contentious. The loss of a year of state pension is a huge deal if you are poor with a lower life expectancy, while rich people are left (if they are lucky) to enjoy an indexed state pension into their 90s. Another idea, means-testing indexation, would be technically very complex. So a more likely reform would be either a double-lock to the higher of earnings or inflation or a simple link to earnings. Heidi Karjalainen of the IFS proposes an Australian-style “smoothed earnings link”, where the government sets a permanent target level for the pension as a share of average earnings. The pension is then uprated each year by whichever measure that keeps it on track to hit that proportion. Whatever happens, state pensions will be less generous in future so invest what you can and “rely on the state as little as possible”, says Guthrie. “It is big, clumsy and it cares a lot less about your financial wellbeing than you do.”
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