The triple lock on pensions was introduced in April 2011 with the aim of ensuring that people in receipt of the State Pension received a cost of living rise to their state pension on an annual basis.
What is the triple lock promise?
The triple lock was described as a promise to increase the state pension by the higher of any of these three factors:
This triple lock promise has guaranteed pensioners an annual increase of at least 2.5% since 2011. Clearly, if Inflation or the national wage increase are higher, then the state pension would increase by more than 2.5%. The 2.5% rate within the triple lock is assessed at the end of September each year.
Why has the triple lock on pensions been suspended?
The treasury has been made aware that inflation data relating to the increase in wages has been distorted due to the 2020 pandemic, meaning that wage increases on average are currently running at 8%. This is thought to have been driven by the impact of workers returning to full pay after being on a reduced rate during the furlough scheme. The national average wage increase has therefore been artificially high this financial year.
Translated into pensions, this would cost tax payers an estimated additional £3Billion in one year.
Therese Coffey, the Work and Pensions Secretary told MPs that there had been an “irregular statistical spike in the earnings” over the period in which the state pension rate is assessed. She went on to say that at a time where the government was having to make difficult decisions across the whole of the public finances that pensioners wouldn’t benefit from a statistical anomaly.
So in April 2022 the State Pension will either rise by 2.5% or the Consumer Price Index, which ever is the higher. The national average earnings will not be taken into account, thereby breaking the triple lock promise.
What is the future of the triple lock?
The government has indicated that this suspension of the triple lock is for one year only, however charities representing the interests of older people and pensioners have expressed concern that this sets a precedent which could be continued into future financial years. The promise to provide an annual increase to the state pension therefore looks shaky.
If you are concerned about the impact of these changes on your pension income please speak to your financial adviser.
This content is for information purposes and should not be treated as advice.
Occupational pension schemes are regulated by The Pensions Regulator.