The state pension triple lock was introduced in 2011. The 'triple lock' is a commitment to increase State Pensions by whichever is highest of average earnings growth, CPI inflation, or 2.5%. The government is only legally required to increase the basic and new State Pension each year at least in line with average earnings, but to drop the triple lock would be a politically sensitive move. However, removing it could be a way to shave a significant sum from the benefits bill.
So how much is the triple lock costing?
In April 2023, the state pension went up by 10.1% - in line with the previous September's measure of inflation. This year the Consumer Prices Index (CPI) rose by 6.7% in the 12 months to September 2023, Also, according to the ONS, annual growth in employees’ average total pay (including bonuses) was 8.5%. Predictions for a rise in the state pension of 8.5% are not unlikely, which is almost as high as last year.
An Institute for Fiscal Studies report published in September states, "Compared with the state pension rising in line with prices or earnings, the government now spends an additional £11 billion per year on state pensions as a result of the triple lock."
The triple lock increases the uncertainty of the future cost of the state pension which makes it a precarious arrangement. Not just for the government to plan, but also for future retirees. What will happen with the three measures? How will the government mitigate rising costs and an aging population?
In the 70's and 80's the state pension was broadly 25% of average salaries and it's back up in that vicinity now, however the proportion of pensioners and their longevity is not the same.
So how can the public purse continue to fund the triple lock or indeed the state pension itself? dropping the triple lock, reducing the amount of pension, means testing or further delaying the retirement age are all potential solutions to make the UK pension pennies stretch further.