What is the Triple Lock and How Much Will the State Pension Rise By?
By Tanya Jefferies for Thisismoney.co.uk
Updated: 11:41 BST, 12 September 2023
The triple lock pledge ensures that the state pension increases each year by the highest of three factors: inflation, average earnings growth, or 2.5 percent.
Due to the current high wage growth, it is projected that the triple lock will result in an 8.5 percent increase to the state pension from April 2024.
Earnings growth for the three months leading up to July was 8.5 percent, as announced on September 12.
Since wage rises are outpacing inflation, which is expected to remain stable or decline, earnings growth will likely determine the final increase.
If today’s earnings growth figure is used for the triple lock calculation, investment platform AJ Bell estimates:
- An increase in the old state pension from £156.20 per week to £169.50 per week or £691.60 annually.
- An increase in the new state pension from £203.85 per week to £221.20 per week or £902.20 annually.
How is the triple lock calculated?
The triple lock calculation uses the Consumer Price Index (CPI) inflation rate from September, which is typically published in mid-October. The most recent CPI reading from the Office for National Statistics (ONS) is for July at 6.8 percent.
The key earnings growth figure, which includes bonuses, is based on the three months leading up to July and is published in September. In September 2023, it was reported as 8.5 percent.
State pension triple lock will drag 650,000 more into tax net
Recent changes to the triple lock:
Last autumn, the inflation rate was 10.1 percent, leading to an increase in the full rate state pension to £203.85 per week or £10,600 per year from April 2023.
The triple lock was introduced in April 2012 by the government of David Cameron to ensure pensioners receive a fair income rise annually.
Despite controversy, both the Conservative and Labour parties have pledged to maintain the triple lock in the next general election.
In April 2022, the government removed the earnings element from the state pension increase due to temporary distortions caused by the pandemic, resulting in a meager 3.1 percent rise based on the previous autumn’s inflation figure.
The government has committed to honoring the triple lock pledge for the coming year, particularly with an election looming.
What is the current state pension amount?
Following the 10.1 percent inflation increase in April, pensioners receiving the post-2016 full rate state pension receive £203.85 per week or £10,600 per year.
Those on the basic rate receive £156.20 per week or £8,120 per year.
Read our pensions columnist Steve Webb’s explanation here on how different state pension elements, such as graduated and SERPS, will be adjusted next April.
Why is the triple lock controversial?
Critics argue that maintaining the triple lock is costly at a time of financial strain, and question whether it is fair to grant pensioners a substantial increase while workers receive below-inflation pay deals.
Supporters argue that unlike the temporary spike in wage growth after the pandemic, pensioners are currently grappling with the real challenge of high inflation on a fixed income.
Many rely solely on the state pension and are struggling to afford soaring food and energy bills.
According to an international measure, the UK has the lowest state pension among wealthy countries. However, this analysis does not capture the full picture as it does not consider the consolidation of state and workplace pensions.
Aside from the moral and fairness arguments in favor of a full increase, elderly people tend to have high voter turnout.
The Conservative party, in particular, would not want to upset this important voting bloc by denying them a triple lock increase for the second consecutive year.
What is the current state pension amount?
The full flat-rate state pension is £203.85 per week or £10,600 per year.
People who retired before April 2016 receive a full basic state pension of £156.20 per week or £8,120 per year.
The old basic rate can be augmented by additional state pension entitlements, such as S2P and SERPS, if earned during working years.
Individuals who opted out of S2P and SERPS to pay lower National Insurance over the years and retired after April 2016 may receive less than the full new state pension.
Under the new system, workers must make 35 years of contributions to be eligible for the full flat-rate state pension, compared to 30 years under the old state pension scheme.
Even if contributions were made for a full 35 years or more, opting out for some years can still reduce the pension amount.
Everyone has the option to defer their state pension to receive higher payments later on, and it is possible to purchase state pension top-ups to fill in any gaps.
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