What is the state pension triple lock?

There has been good news for pensioners as the state pension triple lock looks set to deliver a big boost to their incomes next spring.

Thanks to another set of above-inflation wage growth figures, the state pension is on track to rise by 4.1% in April.

The full new state pension should increase from £221.20 a week (£11,502 a year) to £230.30 (£11,975). And the basic state pension should rise from £169.50 a week (£8,814 a year) to £176.45 (£9,175).

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This 4.1% uplift to the state pension is courtesy of the triple lock - a long-running policy that received cross-party support at the general election.

But while this is good news on a surface level, it puts many pensioners at risk of paying income tax. With the full amount of the state pension now within touching distance of the tax’s frozen threshold, any retirees taking on part-time work may find that HMRC gets in touch. The policy is also unpopular in some quarters for its ballooning cost, as well as concerns over intergenerational fairness.

Chancellor Rachel Reeves is expected to formally announce the new level of the state pension in her Budget speech on 30 October. While the government is committed to the triple lock on paper, it could still revise how it works next year - something the Boris Johnson government did in 2021.

There has already been some bad news for pensioners after Reeves announced millions of them will lose winter fuel payments later this year. The move comes after she accused the Conservatives of leaving a £22bn ‘black hole’ in the public finances. The government is now urging pensioners to check if they are eligible for Pension Credit.

So, what is the triple lock - and what does it mean for your finances? Here’s everything you need to know.

What is the state pension triple lock?

The state pension triple lock is a policy that aims to guarantee that the financial support pensioners receive from the government in retirement increases in line with living costs. First introduced by the coalition government in 2011, it ensures that the state handout will increase every April. It rises by whichever of the following measures is the highest:

• Inflation
• Average earnings growth
• 2.5%

Put another way, pensioners are guaranteed an increase of at least 2.5% a year. If inflation (as measured by the Consumer Prices Index in September) or wage hikes (based on the yearly increase recorded from May to July) come in higher, the state pension will rise by whichever of the two has the highest rate of percentage growth.

In 2023, wage growth data came on top at 8.5% so the state pension increased by that amount in April 2024. The previous year, its level was set by CPI inflation which had come in at 10.1% in September 2022.

The triple lock applies to both the basic state pension (pre-April 2016) and the new state pension (post-April 2016).

How much state pension do I get?

The state pension is a regular payment from the government that most people can claim when they reach state pension age (currently 66 years old). The exact amount you are entitled to depends on your National Insurance contributions (NICs) record.

You qualify for the state pension with 10 years of NICs and get the full amount with 35 years of NICs. By paying National Insurance, you effectively pay into the UK-wide kitty from which state pension payments are paid. You can see what your record looks like by using the government’s Check your state pension forecast tool.

If you’re on the full amount of the new state pension, you will receive £221.20 a week (£11,502 a year). 

Men born before 6 April 1951 and women born before 6 April 1953 get the basic state pension. The full amount of this handout is £169.50 per week (£8,814 a year). The eligibility rules for this maximum are also slightly different. Those with 30 years of NICs get the full amount, with 1/30th taken off the full amount for each year below that number.

How much does the triple lock cost the UK?

Under the current system, the state pension is one of the government’s biggest outlays. Coming in at an estimated £125bn in 2023/24, the handout makes up 42% of the entire welfare budget. According to the Office for Budget Responsibility (OBR), this cost is set to rise by £28bn over the next four years thanks to the triple lock and an ageing population - although this will be offset slightly by a rise in state pension age between 2026 and 2028.

The OBR figures also show that the state pension came in at 4.6% of GDP in 2023/24. It’s expected to be at or slightly below 5% of GDP by 2027/28, which means it would have grown by roughly 1.5 percentage points since the early-noughties. This metric matters because it indicates that the state pension triple lock is getting increasingly expensive relative to what the UK raises in tax.

The triple lock itself costs significantly more than other possible methods of uprating the state pension. A 2023 Parliamentary report estimated that the support would have cost around £114bn in the 2023/24 tax year - £10bn (8%) less than its estimated actual cost - if it had gone up in line with one of earnings or inflation since the triple lock was implemented in 2011. Had the 2.5% element of the triple lock been stripped out, the cost would have been £3.6bn (2.9%) lower.

Say the triple lock was turned into a double lock - or even became solely tied to earnings, as many experts say it should be (see more below) - the total cost would also depend on which measures of inflation and/or earnings were used. While using the CPI is cheaper than RPI, the earnings figure the government uses for the triple lock is always more expensive.

The Department for Work and Pensions (DWP) opts to take average total earnings, including bonuses - a yardstick which increased the level of the state pension by 8.5% in April 2024. If it had used average earnings without bonuses, the increase would have been 7.8%, which would have saved the Treasury an estimated £900m in 2024/25.

What is the future of the triple lock?

Despite being labelled as a ‘fiscal risk’ by the OBR, the triple lock seems to be here to stay. All the major political parties backed the triple lock at the general election, securing its future for at least the next five years (although the government could still attempt to cut its ultimate cost by tweaking the earnings measurement it uses).

Its likely continuation is partly down to the fact that the policy is viewed as a vote winner, particularly among older age groups. A YouGov survey published in March found the majority of British adults believed the triple lock should be maintained by the government, with the most ardent support coming from those aged 50 and over.

A May Opinium poll commissioned by the investment platform AJ Bell also suggested there was a high degree of support from those approaching retirement. According to the survey’s findings, 41% of those aged 65+ said they would be less likely to vote for a party that had plans to ditch the triple lock and replace it with an inflation-linked policy. But the same poll also showed that the policy could alienate younger voters, with 37% of 18 to 34-year-olds saying they would be more likely to support a party that wanted to scrap the triple lock, compared to 17% who would be less likely to do so.

Although the politics of the triple lock mean it’s unlikely to be going anywhere anytime soon, there are several criticisms of the policy. For starters, with people living for longer, its cost to the public purse is rising (see above). Second, there is no way of accurately forecasting how much it will rise in advance, which makes planning for retirement difficult.

According to the Institute for Fiscal Studies (IFS), these two issues mean that it “increases the level and cost of the state pension in an uncertain, and ultimately unsustainable, way”. To illustrate its point, the think tank said its cost could go up by anywhere between £5bn and £45bn by 2050.

Given there is doubt over its long-term sustainability, another criticism is that the policy is unfair on younger workers. In June, Laith Khalaf, head of investment analysis at AJ Bell, warned the state pension age might be the “sacrificial lamb” that pays for maintaining the policy. He added that any move to raise the retirement age at a faster pace could lead to “searching questions about intergenerational fairness”, as younger people would have to work longer to receive the handout.

The state pension age is already due to climb to 67 by 2028. Rishi Sunak’s government briefly toyed with pushing it up to 68 by 2035 - 11 years ahead of schedule - in a bid to bring down costs. But changes to the timetable were ruled out. The next retirement age review is due in 2026.

One potential way of reforming the state pension would be to reduce it to a double lock, so that it goes up by inflation or earnings - a method advocated by the OECD. But a widely held view among pension experts is that a better way to manage the state pension would be to solely link it to wage growth - something the government already has to do by law.

Kirsty Anderson, retirement specialist at Quilter, says this would “create a more predictable and sustainable pension system” as it “not only aligns pension growth with national economic performance but also fosters a fairer distribution of wealth across generations”. She adds: “This approach would mitigate the financial unpredictability associated with the triple lock, creating an easier way to effectively budget and ensure that pension increases do not disproportionately benefit one demographic at the expense of another.”

Meanwhile, former Pensions Minister Steve Webb argues that the triple lock should be retained until pensions make up a “reasonable share of earnings”. The benefit could then be downgraded to a double lock to make it more sustainable.

Shorter-term reform is also likely to be needed. With the triple lock pushing the state pension to just over £11,500 in April 2024 - and on track to reach £11,975 in April 2025 - millions of pensioners are now on the cusp of paying income tax. The tax-free threshold has been frozen at £12,570 since 2021, which means any income pensioners make on top of their state handout could be taxable.

IFS chief Paul Johnson has warned that it may take just three years for all of those receiving the full amount of the state pension to find themselves paying income tax. He argues that “increasing the income tax allowance at the same rate as the pension” would help to avert this scenario. 

Another proposal, which was put forward by the Conservative Party at the 2024 general election, was to apply a triple lock to the tax-free allowance. But this idea was criticised by some experts who said it would not prevent pensioners from being taxed.