What is The Triple Lock on Pension Saving?

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What is The Triple Lock on Pension Saving?

 What is The Triple Lock on Pension Saving?
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  • Chancellor of Exchequer Rishi Sunak has said that he could replace the UK government’s triple lock pension with a double lock system.
  • The step is being taken to avoid adding more than £7 billion to the annual cost of the state pension.
  • The Boris Johnson government in their 2019 manifesto promised to continue raise the state pension in line with average earnings.

Chancellor of Exchequer Rishi Sunak has given a broad hint that the UK government may temporarily break the pension triple lock this year to prevent the UK Treasury being landed with a £7 billion uprating bill.

The chancellor added that a post-lockdown surge in pay growth would result in the state pension going up by 8% in April 2022.

The Boris Johnson government in their 2019 manifesto promised to continue raising the state pension in line with average earnings, the annual inflation rate or 2.5% whichever is higher.   


What is The Triple Lock on Pension Saving?


The Office for Budget Responsibility added that the earnings growth will be artificially increased this year as the restriction imposed on the economy would decrease. The spread of Covid-19 led to loss of many jobs and depressed wages. However, the economic growth is picking up, which means earning growth will be artificially high this year.

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What Is Triple-Locked State Pension?

The triple lock was launched by the Coalition Government in 2010 to protect state pension so it would not lose value in real terms and that it would increase at least in line with inflation.

There is a statutory requirement to uprate the basic State Pension and New State Pension introduced in 2016 every year at least in line with earnings.

To make the promise even more secure and ensure growth, the triple lock system includes three measures that decide how much the state pension will go up each year.

The State Pension adjusts to the highest of three measures:

  • Average earning: the average percentage growth in wages (in Great Britain).
  • Consumer prices Index: The percentage growth in prices in the UK as measured by the Consumer Prices Index (CPI).

For example, if average earning were to increase by 4%, the state pension would also increase by 4%. But it is to be noted that even if the average earnings or the CPI doesn’t increase by more than 2.5%, the pension will still be hiked by 2.5%.

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However, if wage growth and price growth remain low, the state pension increase beat inflation. A person can claim the basic State Pension if:

  • A man born before 6 April 1951
  • A women born before 6 April 1953

To get the basic State Pension, you must have paid or been credited with National Insurance contributions and the most a person can currently get is £137.60 per week.

How Does the Triple Lock Affect You?

The Triple lock system has led to overall increase in the state pension by 41% since 2011. This means triple lock in 2020-21 may cost around £5.6 billion more than if state pension rises, which is at present only linked to average earnings over the same period. It the double lock would be implemented; over the same period it would have saved £1.2 billion.  

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In April 2021, the state pension increased from £175.20 to £179.60 a week, offering a total of £9,339.20 a year.

A person will receive state pension when they reach state pension age and whether they are entitled to the full state pension or not, depending on how much and for how many years a person has contributed towards the national insurance.

If a person hasn’t started claiming the state pension they can apply for a state pension forecast to find out what you can expect to know what they can expect to receive. 

Triple Lock Pension’s Impact

Under the triple lock system, it is ensured that the pensioners spending power will not diminish over the course of their retirement because as per the existing rule it will always match inflation at the very least.

The Consumer Prices Index (CPI) monitors the price of various daily used goods that we purchase, and the CPI figure shows how those prices have changed over a year.

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For example, if CPI is 1% that means the prices of a basket of goods has increased by an average of 1%. If the state pension doesn’t keep pace with inflation, the pensioners could find their pension and their purchasing power gradually going down.

Over the last 10 years, under the triple lock the state pension has increased seven times.


Source: Parliament, UK

Covid-19 and The Triple Lock Pension

The UK economy is in unique situation that is known as Anomaly. Due to covid-19 restriction, the economic activities were shutdown which led to job losses and irregular business activities. After the pullback of restriction, the rise in economic activities led to huge increase in average earnings.

According to the Bank of England, average earning may increase by 8% this year, hence the equivalent rise in the state pension, which is considerably higher than the rise seen under the triple lock in the last 10 years.

Can The Triple Lock Be Taken Away?

The triple lock has proven to be a burden for most governments as it has been costly for the taxpayer. The UK government is reportedly in talks to modify or remove it completely.   

There is an argument that the triple lock could be replace by a double lock that would see the state pension increase by whichever is the greater of average earning or inflation without the 2.5% minimum limit.

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How Will It Affect the State Pension

The calling off of the triple lock pension would not have a huge immediate impact on current pensioners, even if triple lock is replaced by double lock. As the level of the state pension would still rise with inflation. It just wouldn’t exceed it.

But if the triple lock is replaced by the single lock, linked either to earning or the CPI, not both, the spending power might decrease over the long term.

The worst scenario would be completely removing the triple lock system. In that case, the pension will not adjust the inflation rate and would return to the times when state pension hikes were simply made at the whim of the Chancellor in the annual budget. This is unlikely but can’t rule out altogether in the long term.


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