The pension triple lock is a means to adjust the amount paid via the State Pension every year. It offers a way to ensure the income of pensioners doesn’t decrease by guaranteeing the value of the State Pension doesn’t fall.
You can apply for the State Pension – a regular payment from the government – once you reach State Pension age. This age is currently 66 for both men and women, but it is expected to increase to 67 by the year 2028.
Did You Know?
The amount of State Pension you are eligible is determined by your National Insurance1 contributions, paid throughout your career.
The triple lock pension was established to ensure that, each tax year, the State Pension increases by whichever of the following is largest:
- Average earnings
- September’s price inflation
Should average earnings and inflation rise by 2%, the State Pension would still increase by 2.5% due to the guarantee. However, if the average earnings increased by 3%, the State Pension would also increase by 3%.
When Was the state Pension Triple Lock Introduced?
In 2010, the triple lock guarantee was put forward by the Conservative-Liberal Democrat coalition.
The goal of the pension triple lock is to protect the State Pension and ensure the cost of living doesn’t overtake the income of pensioners.
The measure has come under some scrutiny. It has been proven costly to the government and taxpayer and has led to numerous debates over changing the system. This has been an exceptionally touchy subject over the last few years when average earnings and price inflation have sat below the 2.5% guarantee.
This debate is likely to continue for the next several years, especially as the number of pensioners is expected to rise over the next few decades.
What Parts of The Pension Triple Lock Could Change?
One of the suggested changes is to reduce the measure to a double lock, which could see the 2.5% guarantee dropped. This would allow the State Pension to increase by only the average earnings or price inflation, depending on which amount is more.
Another option could be suspecting the triple lock, or freezing the State Pension rate, for a few years.
How Could Coronavirus Impact On The Triple Lock?
The global coronavirus pandemic has put financial pressure on the government’s treasury. This has seen a renewed interest in the affordability of the pension triple lock system and has seen a call for the triple lock to be suspended as for fear it may prove too costly to maintain following the financial crisis.
Funds have also been diverted to support increased applicants to the UK furlough scheme2 due to coronavirus, and the government is now supporting over nine million workers. The furlough scheme sees government paying 80% of a worker’s monthly wages with a limit of £2,500.
When the furlough scheme ends, there will be a massive spike in average earnings because workers will receive their full pay again. Lower paying jobs may also disappear. It has been estimated that once the scheme ends, average earnings could rise by 18% in 2021.
Those on a pension are protected from the current drop and would benefit from the wage spike next year.
Maintaining the triple lock could cost the government over £34 billion in 2021 and 2020.
How Could Pension Triple Lock Changes Affect My Pension?
If you receive the State Pension, the removal of the triple lock shouldn’t affect your retirement income – especially if the government moves towards a double lock system. However, should the State Pension increase be linked to only a single lock of either average earnings or price inflation, the value of the pension could take a knock over the medium to long term.
You’re most likely to feel the effect of the removal of the triple lock if you have not yet retired. The State Pension is already not likely to provide a sufficient income for your retirement, and any changes will leave those still working in need of alternative pension funds.
A Few Common Questions
A private pension is a fund you save towards with personal contributions or contributions from your employer. How much you save towards your fund will depend on the value of your contributions and returns on investments. The State Pension is provided by the government and is calculated according to your National Insurance contribution history.
There is no limit on deferment. You can start deferring your pension even if you have already begun withdrawing from it
Once you turn 55, you can withdraw from your pension fund. You allowed to remove up to 25% of your fund tax-free. To access your fund earlier, you will need to meet specific criteria such as a medical condition that stops you from working, or if a doctor has said you have less than a year to live.
A savings plan offers a low-risk, liquid funds. A pension plan is a long-term saving that can be accessed when you retire, as well as before in certain circumstances. Pensions also offer benefits that savings funds don’t, such as eligibility for tax relief and employer contributions.
Pension triple lock changes are unlikely to affect retirees currently receiving their State Pension, but they could have a lasting effect for those who are still working.