- The UK state pension is set to rise by 8.5% from April 2024, in line with average earnings growth figures published this morning (Source: Average weekly earnings in Great Britain - Office for National Statistics (ons.gov.uk))
- The ‘triple-lock’ guarantees the state pension rises by the highest of average earnings growth, inflation or 2.5% each year
- Seasonally adjusted pay growth for the three months to July is the figure that usually counts for the triple-lock, while Consumer Prices Index (CPI) inflation for the year to September is the key inflation figure
- Assuming today’s earnings growth figure is used for the triple-lock, this would imply:
- An increase in the old state pension from £156.20 per week to £169.50 per week
- An increase in the new state pension from £203.85 per week to £221.20 per week
- Had the new state pension increased in line with either inflation or wages since 2011, it would be worth around £180 per week today – meaning the policy has added an extra £11 billion a year to public spending, according to the Institute for Fiscal Studies (IFS) (The triple lock: uncertainty for pension incomes and the public finances | Institute for Fiscal Studies (ifs.org.uk))
- In 2022/23, the government spent £110 billion on state pensions, with the Office for Budget Responsibility (OBR) predicting real-terms state pension spending will rise by £23 billion by 2027/28
Tom Selby, head of retirement policy at AJ Bell, comments:
“Retirees are set to receive their second blockbuster state pension increase in a row as a result of the government’s ‘triple-lock’ policy.
“With price rises seemingly on a steady downward trajectory, it is almost certain – barring a major inflationary shock – that today’s 8.5% earnings growth figure will be used for next year’s state pension rise. As a result, the full new state pension will surge to £221.20 per week, while those in receipt of the old state pension will see their benefits increase to £169.50 per week.
“This comes hot on the heels of the bumper 10.1% state pension increase applied in April this year, in line with inflation in the prior September.
“For those in receipt of the state pension, the protection provided by the triple-lock is extremely valuable. Had the new state pension been linked to the highest of average earnings and inflation – rather than having a 2.5% underpin – it would be worth around £180 a week rather than over £200 a week today.
“From the government’s perspective, the policy means the state pension system costs the Exchequer around £11 billion more versus a ‘double-lock’ to earnings and inflation, according to the IFS. By 2050, the policy could see state pension spending rise by anything between £5 billion and £45 billion a year in today’s terms.
“For savers, this lack of certainty about future increases makes it difficult to plan their own retirement saving. What’s more, as the triple-lock increases the value of the state pension, other cost-saving measures – most likely future state pension age increases – will inevitably become more likely.”
What is the triple-lock trying to achieve?
“A central problem with the triple-lock is that it is a policy without a clear goal as things stand, randomly ratcheting up the value of the state pension in real terms whenever inflation and earnings growth are below 2.5%. It also leaves the government exposed to spikes in inflation or earnings – a flaw which has been brutally exposed in recent years. However, any move to deviate from the triple-lock would come with significant political risk and is therefore unlikely to be countenanced by any major party, particularly with a general election less than two years away.
“What savers of all ages need from the government is stability when it comes to state pension policy. Ideally, that would come through cross party agreement on how much income the state pension should provide in retirement and how much of someone’s later years should, on average, be spent in receipt of the state pension. Serious consideration should also be given to develop smoothed earnings and inflation measures which can then be used to deliver less volatile annual increases.
“Sadly, there is currently a vacuum of sensible debate on the state pension, with the triple-lock essentially used as a totem for ‘doing right by older people’. It may require another independent review of the state pension to break this cycle and build the foundations of a consensus on what the state pension should look like over the long-term.”
