Is the triple lock set to be retired?
- The State Pension triple lock was always intended as a means to increase the real terms level of basic retirement income, not a permanent solution.
- Policymakers should set a plan for what level of State Pension is adequate and affordable, with details of what will replace the triple lock when it has achieved that objective.
- Having an annual debate about its application and affordability is unhelpful for people trying to plan their retirement.
A bumper increase for pensioners in 2023, and the prospect of another for 2024, have many people waving the intergenerational fairness card, raising questions about when it should stop and what will replace it. Unless September’s inflation figure tops 8.5%, or wages growth is adjusted, the State Pension will rise to £11,541 a year or £221.17 a week from April 2024.
Jamie Jenkins, Director of Policy and Communications at Royal London, said:
"The importance of the State Pension shouldn’t be underestimated. It’s the foundation of most people’s income in retirement and for three in ten women and one in eight men, it’s their sole income. It would take a pension pot of around £220,000* to buy the equivalent level of income using an annuity.
"Throughout the noughties, the State Pension was slowly devalued relative to rising earnings. The triple lock was introduced in 2010 to address this and to increase the level of the State Pension in real terms over time. However, it was never intended to last forever and all the projections demonstrate how this would likely become unaffordable over time."
The implementation of the triple lock means the State Pension increases in line with the highest of September’s inflation figure, seasonally adjusted pay growth for the three months to July, or 2.5%.
Since the new State Pension was introduced in 2016, the triple lock has brought it up from £8,122 to today’s figure of £10,637, and wages growth of 8.5% announced in September could take it to £11,541 a year. During this period the minimum floor of 2.5% has been used twice, earnings twice and, although inflation has been the measure three times, this included 2022/23, when the earnings figure was dropped in favour of CPI due to employment anomalies caused by the pandemic.
The graph shows the benefit of using three measures to determine new State Pension increases. If it had increased solely by 2.5% per annum, the state pension would only be £9,654 (9.25% less), and if the increase had been in line with CPI, it would now be £10,038 (5.6% less). If it had increased solely by earnings each year it would be £10,665, £27 higher than its current level, but this anomaly is accounted for by the downgrade to a double lock last year.
Another significant rise looks likely if wage growth of 8.5% is used for next April’s rise. However, we need to wait until later in the autumn before the government confirms this, with rumours circulating that some adjustments may once again be applied. One suggestion is that bonuses for public sector workers will be stripped out, in effect reducing the earnings figure.
Jenkins added; "The Government has yet to confirm whether the triple lock will apply this year, and neither of the two main parties has committed to its longer-term application. The time is right for a proper debate about what level of State Pension is fair and affordable, and what will replace the triple lock once that level is achieved."
Notes to editor
Someone age 67 wanting to buy an annuity to provide £10,636.60 per annum would require a fund value of £220,585. Assumes a male age 67 today, single life, monthly income in advance, no guarantee and escalating by RPI. Individual is 5ft 11 inches, has a 34 inch waist, has no medical issues and is a non-smoker.
For further information please contact:
Neil Cameron, PR Manager
- Email: neil.cameron@royallondon.com
- Mob: 07919 171969
About Royal London
Royal London is the largest mutual life, pensions and investment company in the UK, and in the top 25 mutuals globally, with assets under management of £162 billion, 8.6 million policies in force and over 4,200 employees. Figures quoted are as at 31 December 2023. Learn more at royallondon.com.
