State Pension triple lock

The triple lock is a government commitment to uprate the basic and new State Pension every year by the highest of earnings growth, inflation, or 2.5%.

Since April 2016, there have been two State Pension systems in the UK:

• The new State Pension for those reaching State Pension age from 6 April 2016.
• The old State Pension for those who reached State Pension age before 6 April 2016. This consists of two tiers:
  • The basic State Pension, based on a person’s National Insurance contribution record.
  • The additional State Pension, which is partly earnings-related.

There is a statutory requirement to uprate both the basic and new State Pension every year at least in line with earnings, but the triple lock commitment goes beyond this. Different uprating arrangements apply to the other parts of the State Pension.

The triple lock since 2011

The triple lock was introduced by the Coalition Government in its first Budget after the 2010 election. It was implemented from the 2011/12 financial year and has been applied every year since, except for a temporary suspension in 2022/23. Before 2011, pensions had been uprated at least in line with prices since 1980, when an earnings link was ended by the then incoming Conservative Government.

The Conservative Government continued the policy from 2015, and “no change to the Pensions Triple Lock” formed part of the agreement between the Conservative and Democratic Unionist Parties after the 2017 election. There was cross-party support for the triple lock again in manifestos for the 2019 general election.

The triple lock following the pandemic

Volatile earnings figures following the coronavirus pandemic prompted the Government to legislate on State Pension uprating.

In 2020, disruption to the labour market caused average earnings to fall, meaning that most State Pension rates would have been effectively frozen in 2021/22. This was because the legislation prevented the Secretary of State from making an uprating order where earnings growth is negative.

To avoid this, the Government introduced the Social Security (Uprating of Benefits) Act 2020, allowing the triple lock to be implemented in 2021/22. Relevant State Pensions were uprated by 2.5%.

The relevant Average Weekly Earnings (AWE) index then rebounded to 8.3% (later revised to 8.4%) in the following year. In anticipation of this, the Government said it was “a distorted reflection of earnings growth” reflecting recovery from furlough and other pandemic-related measures. To address this, the Social Security (Uprating of Benefits) Act 2021 suspended the earnings element of the triple lock for the 2022/23 financial year. Instead, State Pensions increased by 3.1% in line with the Consumer Prices Index (CPI).

Effect of the triple lock

Over time, the triple lock has increased the value of State Pensions relative to prices and earnings, as well as the cost to the Government.

The triple lock, along with the introduction of the new State Pension, has increased the value of the State Pension relative to average earnings to a level not seen since 1980, when the policy of uprating in line with earnings was ended. From a peak of 26% in 1979, the value of the basic State Pension as a percentage of average full-time earnings fell to around 16% between 2000 and 2010.

Debate on the future of State Pension uprating

Concerns have been raised about the sustainability of the triple lock in the long term, particularly in light of recent economic volatility which has accelerated growth in government spending on State Pensions.

The Office for Budget Responsibility (OBR) has noted the ratchet effect of the triple lock. It increases State Pension rates, and spending as a proportion of GDP over time, particularly following shocks to earnings or inflation, adding to pressures already resulting from an aging population.

Critics argue that the triple lock is unfair because older adults currently experience higher standards of living than younger people may expect to enjoy in the future, and that it is unfair to expect younger people to subsidise older people’s incomes so much through the triple lock.

Supporters of a continued triple lock argue the policy helps improve the adequacy of retirement incomes for current and future pensioners. They note the particular importance of State Pensions to those on lower incomes, and that the UK State Pension is low in an international context.

Proposals for the future of uprating

Despite the temporary suspension in 2022/23, the Government and opposition parties reiterated a commitment to the policy in debates on bills relating to the triple lock following the pandemic. However, both the Conservatives and Labour are yet to confirm whether the triple lock will be a manifesto commitment in the next general election.

Supporters of the policy such as Sir Steve Webb, the former Pensions Minister who oversaw the introduction of the triple lock, have pointed out that “the UK still has one of the lowest state pensions in the Western World”, despite the triple lock having been in operation for more than a decade. He has suggested the policy should be maintained until the State Pension reaches a “reasonable” proportion of average earnings.

Alternative uprating proposals from think tanks and other commentators arguing for an end to the triple lock include:

• Returning to a link with either prices or earnings.
• A ‘double lock’ increasing State Pensions with the highest of earnings or prices.
• A ‘smoothed earnings link’ with the option to further top-up State Pensions in periods of high inflation and a clawback mechanism to avoid compounding increases relative to earnings.