Who misses out on the state pension triple lock?
Not all pensioners have their state pensions, or aspects of it, increased each year in line with the triple lock. We explain who misses out.
Hundreds of thousands of people are missing out on an annual increase in their state pension due to quirks in the system.
The triple lock guarantees that state pensions are boosted each year by the highest of inflation, wage growth, or 2.5%.
The UK state pension rose by 4.8% in April under the triple lock mechanism. The full new state pension was hiked from £230.25 per week to £241.30 per week. This means the full new amount is now around £12,547 per year.
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Meanwhile, the full ‘old’ basic state pension increased from £176.45 per week to £184.90 per week, taking the full annual amount to £9,614.
But many British pensioners are missing out on the yearly uplift due to where they live or the type of pension they have.
Meanwhile, others are missing out on triple lock-linked rises on specific elements of their state pension due to the way the system operates.
1. Retirees living abroad in certain countries
British pensioners living abroad in certain countries such as Australia, Canada and New Zealand, don’t have their state pension increased under the triple lock.
This ‘frozen state pension’ policy affects over 400,000 pensioners, according to End Frozen Pensions, with 49% of these people receiving £65 per week or less.
Helen Morrissey, head of retirement analysis at investment platform Hargreaves Lansdown, said: “If you are planning on retiring abroad then it’s really important to do your due diligence.
“If you retire somewhere that is not in the European Economic Area or somewhere that doesn’t have a social security agreement with the UK that includes uprating then your state pension could be frozen.
“The state pension forms the foundation of your retirement income and if it is frozen you could find your standard of living impacted over time.”
Where can you live abroad and still receive an annual state pension uplift?
If you live in the following countries, you receive an annual increase to your state pension:
- Austria
- Belgium
- Bulgaria
- Croatia
- Cyprus
- Czech Republic
- Denmark
- Estonia
- Finland
- France
- Germany
- Greece
- Hungary
- Iceland
- Ireland
- Italy
- Latvia
- Liechtenstein
- Lithuania
- Luxembourg
- Malta
- Netherlands
- Norway
- Poland
- Portugal
- Romania
- Slovakia
- Slovenia
- Spain
- Sweden
- Barbados
- Bermuda
- Bosnia-Herzegovina
- Gibraltar
- Guernsey
- the Isle of Man
- Israel
- Jamaica
- Jersey
- Kosovo
- Mauritius
- Montenegro
- North Macedonia
- The Philippines
- Serbia
- Turkey
- USA
2. Pensioners with additional state pension
The triple lock pledge only applies to the old basic state pension and the new state pension.
Under the basic state pension system, you were sometimes entitled to additional amounts known as the State Second Pension or SERPS, however these extra amounts are not triple lock-protected.
Brits who paid into the old state pension system and have additional amounts receive ‘protected payments’ if their entitlement exceeds the full new state pension amount.
These protected payments also don’t rise under the triple lock mechanism and typically increase in line with the Consumer Prices Index (CPI) measure of inflation each year.
Jon Greer, head of retirement at wealth manager Quilter, said: “People receiving additional state pension entitlements built up under previous pension arrangements may find those elements rise by a different measure, and are generally uprated in line with inflation rather than the triple lock.”
3. People who defer their state pension
The third group of people who don’t benefit from the triple lock on their whole state pension are those who defer their state pension.
Your state pension increases by 1% for every nine weeks you delay taking it, equivalent to 5.8% over a year, if you reached or will reach state pension age on or after 6 April 2016.
Deferring can be a good option for people who don’t need the income immediately, perhaps because they are still working or have other sources of cash.
However, any deferred amount you accumulate does not rise via the triple lock mechanism.
Greer said: “The additional amount earned through deferral is calculated under separate rules and may not benefit from the triple lock in the same way as the underlying state pension.”
