What is the triple lock on pensions and how could it affect you?
27 Jul 2021
The triple lock on pensions, which is a Government pledge to raising the State Pension by a certain amount each year, has been hitting the headlines. This is because there have been calls to review the triple lock in the wake of the pandemic, amid fears that it could become too expensive to maintain.
But what is it and how can it affect you?
The triple lock is a guarantee made by the Government that the State Pension would increase at least in line with inflation. To make the guarantee even more secure, it includes three separate measures of inflation.
Each year, the State Pension would increase by the greatest of the following measures:
- Average earnings;
- Prices, as measured by the Consumer Prices Index (CPI); and
This means that the lowest the State Pension could increase year on year would be 2.5% but it has the potential to be higher.
How has COVID-19 impacted the triple lock?
As people come back from furlough and return to full pay, this is recorded as a large rise in average earnings. Job losses have also affected those in low-paid work too.
This leads to a unique situation, and one which economists describe as an anomaly. Predictions by the Bank of England suggest that average earnings could go up by 8%, hence the equivalent rise in the State Pension.
That is considerably higher than rises seen under the triple lock in the last decade. This rise will impact taxpayers, therefore, the chancellor, Rishi Sunak has said ‘We want to make sure the decisions we make and the systems we have are fair, both for pensioners and for taxpayers.’
How does the triple lock affect you?
If you are currently receiving the State Pension, the triple lock ensures that your pension is always keeping up with inflation. It also means that if inflation is below 2.5%, your pension increases will actually beat inflation.
What would happen to my State Pension without the triple lock?
The loss of the triple lock would not have an immediate impact on current pensioners. The Government may use a double lock, using the higher of inflation or a 2.5% increase. The level of the State Pension would still rise with inflation – it just wouldn’t exceed it.
What happens next?
Rising wage figures, which affect the decision around the triple lock will be published later this summer. These figurers will allow the Government to make their final decision on the triple lock in the autumn. We will keep you updated on this subject when there are any developments.
You can find more about the State Pension here www.gov.uk/state-pension.