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State Pension: What is the triple lock?

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Understanding the State Pension Triple Lock

Sean Gilbert

Chartered Financial Planner

20th November 2023

The state pension ‘Triple Lock’ was introduced back in 2011, and there have recently been calls to revisit this guarantee.

In this article, we’ll break down the state pension Triple Lock in simple terms, so you can grasp what it means for your retirement income.

What Is the State Pension Triple Lock?

The state pension Triple Lock is a government policy that ensures the state pension increases annually by the highest of three metrics:

  1. Inflation (measured by the Consumer Prices Index or CPI)
  2. Average Earnings Growth
  3. 2.5%

This policy was introduced to safeguard the purchasing power of the state pension, ensuring it keeps pace with the rising cost of living and increasing wages.

How Does the Triple Lock Work?

Let’s put the Triple Lock into perspective with an example:

  • Inflation for the year: 2.0%
  • Average Earnings Growth for the year: 3.0%
  • The Triple Lock Minimum Increase: 2.5%

In this case, the state pension would increase by 3.0%, ensuring that the income maintains its value in real terms.

The Impact of the Triple Lock

Since its implementation in 2011, the Triple Lock has led to a notable increase in the state pension’s value, along with a corresponding rise in the government’s expenditure on pension support. The financial assistance provided to pensioners has seen a significant boost due to this policy. If the state pension had followed either price inflation or earnings growth since 2011, it would currently be approximately 11% lower than its current value. In this scenario, the full new state pension would amount to approximately £180 per week, contrasting with the current rate of £204 per week.

When compared to a state pension that adjusts solely in accordance with price inflation or earnings growth, the government now allocates an additional £11 billion per year to support state pensions, thanks to the existence of the triple lock. (source: Institute for Fiscal Studies)

Addressing Concerns

Let’s explore the broader implications of the Triple Lock:

  1. Budgetary Considerations: Some worry that the Triple Lock may strain government finances in the long term, potentially affecting future retirees.
  2. Inter-generational Fairness: Critics argue that the policy may place an unfair burden on younger generations, who contribute to funding these increases through taxes.
  3. Economic Challenges: During economic downturns, the policy’s 2.5% minimum increase can create economic challenges when it exceeds inflation or earnings growth.

The Future of the Triple Lock

While the state pension Triple Lock may sound secure with its triple-pronged approach, it’s essential to remember that, in reality, there’s no true “lock.” The government has the power to adjust or change this policy as circumstances evolve and fiscal priorities shift.

As we’ve seen, the Triple Lock has played a vital role in shaping retirement income, benefiting current retirees and influencing government spending. However, its future remains uncertain, and discussions about reform or temporary suspensions are ongoing.

How Can I Secure My Retirement Income?

If you’re a considerable distance away from your state pension age it is generally a good idea to prioritise saving as much as possible into workplace or personal pension schemes.

The state pension is subject to potential adjustments. The further you are from your state pension age, there’s an increased likelihood that government policies may evolve. To safeguard your retirement income, it’s prudent not to rely excessively on it.

Consider the state pension as supplementary support for your private pension savings.

This information is based on our current understanding and is subject to change without notice. This article is for general information only and does not constitute advice.  Whilst information is considered to be true and correct at the date of publication, changes in circumstances, regulation and legislation after the time of publication may impact on the accuracy of the article.

The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested.

HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen.

We have local offices in Edinburgh, Falkirk, Glasgow, Livingston and Stirling and provide Financial Advice throughout Scotland. If you would like to speak to an Independent Financial Adviser (IFA) then book your free initial consultation.

Sean Gilbert

Chartered Financial Planner

Chartered Financial Planner at Select Wealth Managers with 14 years of Financial Services experience. Before working in Financial Services, Sean…


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