Why your 'triple lock' pension isn't as safe as it seems

Rishi Sunak was forced to publicly commit to maintaining the “triple lock” on the state pension last week, a promise met with both praise and concern.

But what is the triple lock and why does it matter? We ask the questions

I know the pension age is rising, but what’s this ‘triple lock’ that everyone is talking about? The triple lock is a political promise to pensioners which ensures they don’t become progressively poorer just because they aren’t working. It means that state pensions rise by 2.5%, or in line with inflation or average wage growth – whichever is highest.

When was it introduced? During the New Labour years, pensioner poverty was significantly reduced. The “triple lock” was brought in by the coalition government in 2010 to make sure that they didn’t slip back behind working people. It was suspended temporarily during the COVID-19 crisis, but is now back in place.

Okay, so why is it a problem now? Pensions make up the largest welfare and benefits payment that the government makes. Due to a rapid rise in earnings, as the cost of living bites, pensioners are set to get a huge rise of 8.5% in 2024, boosting their basic income by £900 a year – and costing the government a lot.

The Institute for Fiscal Studies has put a number on it - a big one: "Based on our calculations, a reasonable estimate (taking place 80% of the time) for additional spending on the state pension in 2050 due to the triple lock, above and beyond earnings indexation, would be between £5 billion and £45 billion a year in today’s terms."

It depends who you ask. Pensions minister Mel Stride described the triple lock as “unsustainable”. Figures from the Office for National Statistics show that pension payments currently make up 42% of all welfare spending, taking a huge toll on the public purse.

How does this compare to other nations? Not very favourably. At just over 40% of pensioners’ gross income, the UK’s state pension is relatively ungenerous compared to other developed economies. In the UK, older people increasingly rely on private savings – a trend that’s set to continue.

Is there a solution? Government advisors have asked that public sector bonuses, which were paid out to resolve industrial action, be stripped out of the calculation this year so that pensions would only rise by 7.8%, saving the government - and the taxpayer - hundreds of millions of pounds. It would, however, see pensioners miss out on up to £75 a year.

What does Rishi Sunak think about it? Good question. Rumours circulated earlier this month that he was planning to abandon the triple lock altogether as it is no longer affordable. But his advisors warned him it would be “political suicide” to drop it, even though its opponents claim it is increasing intergenerational inequality. Now he claims it will remain intact under a future Conservative government.

How did that go down? The debate has caused friction in the party and among Conservative voters. To distract attention from the debate over pensions, it has started talking about scrapping inheritance tax instead – a tax that is loathed by many people, even though the majority would be highly unlikely to ever deal with an inheritance tax bill.

What are the other parties saying? At their party conference this week, the Liberal Democrats committed to retaining the triple lock if they returned to government, and even claimed ownership of the policy. Lib Dem leader Ed Davey said the Tories “weren't keen on it” when it was first introduced, but that the idea had been “very successful”.

“The Conservatives broke the link between pensions and earnings back in 1980. For 30 years, British pensioners fell behind the rest of Europe and we became bottom of the league for the state pension,” he said. “Countries that are much less wealthy than us were paying their pensioners, [still] are paying their pensioners more, so the triple lock from the Liberal Democrats was designed to try to begin to rectify that.”

And Labour? Asked directly if the triple lock would continue under Labour, Keir Starmer: “I’m not going to set out our plans for after the election. It was this Government that made the commitment in relation to the triple lock. It’s this Government that ought to keep the commitment that they’ve made, and it’s this Government that’s introduced the doubt now about the triple lock by suggesting that they’re not going to keep their pledge." Looking at the latest polls, it looks like the policy’s days could be numbered.

By the time I retire, I don’t expect much of a state pension at all. What’s in this for me? The government has also made it easier for working people to save towards retirement. The annual pension allowance, the maximum amount of money that a person can put into a private pension each year without facing an additional tax burden, went up from £40,000 to £60,000 on 6 April.