State Pension Triple Lock Explained
The triple lock protects the income that retirees receive through the state pension from inflation. Usually payments increase in line with the highest of either earnings, Consumer Prices Index inflation, or 2.5%.
At some point in your mid- to late 60s, you will reach your state pension age and be eligible to start receiving the state pension. How much that pension income increases each year is usually determined by the state pension triple lock.
What is the pension triple lock?
The triple lock is a system of three measures that decide how much the state pension will rise each year. Its primary aim is to protect the state pension from inflation and ensure that it rises by a real and tangible amount each year.
Under the pension triple lock guarantee the state pension increases annually by the higher of either:
- the average rise in inflation as measured by the Consumer Prices Index (CPI) in September of the previous year
- the average increase in earnings as measured in July of the year before
- or a minimum of 2.5%
What happened with the triple lock in 2022?
The government retains some discretion over the triple lock and can modify it or remove it completely.
Indeed, in September 2021 the government announced the earnings element of the triple lock would be suspended for one year. A post-lockdown spike in wages meant the earnings measure was set to deliver a record 8% rise in state pension payments. But with Treasury finances already stretched by the impact of Covid-19, the government temporarily removed earnings from the equation and determined that the next state pension uplift in April 2022 would reflect the highest of only inflation or 2.5%.
As a result, in April 2022, the state pension rose by 3.1%. This is because the triple lock is measured each autumn and, in September 2021, the CPI measure of inflation was 3.1%.
What about the state pension triple lock in 2023?
It has been confirmed that the state pension will rise by 10.1% from April 2023, in line with CPI inflation in September 2022.
The earnings element of the triple lock was reinstated as an option for determining the rise in the state pension for the 2023/24 tax year, but ultimately the inflation element was used as it delivered the highest increase.
How does the triple lock affect the state pension?
In April 2022 the full new state pension rose from £179.60 to £185.15 a week, providing a total income to qualifying pensioners of £9,627.80 a year. Those in receipt of the old basic state pension saw their payments rise from £137.60 to £141.85 a week, or a total income of £7,376.20 a year.
How much state pension you will receive depends on when you reach state pension age and whether you are entitled to the full state pension or not. This is based on how many years of national insurance contributions (NICs) you have made.
If you haven’t yet started claiming the state pension, you can apply for a state pension forecast to find out what you can expect to receive.
How could the triple lock pension affect me?
If you are in receipt of the state pension, the triple lock system aims to ensure that the amount you receive will always maintain its spending power. This is because it is guaranteed to always at least match inflation.
It is important this happens because inflation measures any change in the cost of living. The Consumer Prices Index monitors the prices of hundreds of everyday goods and services typically bought by an average UK household – the CPI figure shows how those prices have changed over a year.
So, if CPI is 0.5% that means that a basket of goods has increased in price by an average of 0.5%. If the state pension failed to keep pace with inflation, your pension would gradually buy you less and less.
Increasing life expectancy means many of us can look forward to a retirement that takes us to our 80s and beyond. The triple lock should ensure that the state pension you receive into old age will, at the very least, buy the same amount of goods as it did when you first reached your state pension age.
» MORE: How to plan for your retirement
Could the triple lock be withdrawn altogether?
The triple lock has cost the government far more than was ever anticipated, paving the way for the argument that it might need to be changed.
By way of illustration, the House of Commons Library reveals that in 2020/21 the triple lock cost the government £5.6 billion more than if state pension rises had only been linked to average earnings over the same period. Yet if the earnings measure had been applied in 2022/23 rather than being suspended, government spending on state pensions would have increased by between £4 billion and £5 billion.
Fear of the voter response has almost certainly been the main reason why the government has generally been reluctant to make changes to the triple lock. While sharply rising inflation had raised questions as to whether the lock might be suspended again for 2023/24, Chancellor Jeremy Hunt stood by the commitment in the Autumn Statement 2022.
However, in suspending the triple lock for the 2022/23 tax year, the government may still feel more confident to make more permanent and significant changes in the future, particularly as Treasury finances continue to creak.
How can I protect myself against changes to the triple lock?
While the state pension often plays a crucial role in helping people fund their retirement, it is important to try to avoid an over-reliance on what the government provides. The suspension of the triple lock and the rising state pension age are prime examples of how the rules can change in relation to pensions, and potentially disrupt the best laid retirement plans.
If your retirement is still some years away, paying into a workplace pension or setting up your own personal pension could give you a better opportunity to retire on your own terms, regardless of how the state pension might change.
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Ruth is a freelance journalist with 15 years of experience writing for national newspapers, magazines and websites. Specialising in savings, investments, pensions and property. Read more
Tim draws on 20 years’ experience at Moneyfacts, Virgin Money and Future to pen articles that always put consumers’ interests first. He has particular expertise in mortgages, pensions and savings. Read more