The paper discusses pensions auto-enrolment, its introduction and roll-out, the impact it has had, and the potential for future reform.
Under the triple lock, State Pensions are expected to rise by 8.5% in April 2024 in line with earnings. This follows a 10.1% increase in line with Consumer Price Index (CPI) inflation the previous year.
This Insight explains what the triple lock is and summarises debates about its sustainability.
What is the triple lock?
The government is legally required to increase the basic and new State Pension each year at least in line with average earnings.
The ‘triple lock’ is a commitment, beyond this legal requirement, to increase State Pensions by whichever is highest of average earnings growth, CPI inflation, or 2.5%.
The triple lock was first introduced by the Coalition Government and came into effect in the 2011/12 financial year. It has been applied every year since, except for a temporary suspension in 2022/23. Prior to this, pensions had been uprated at least in line with prices since 1980, and with earnings before this.
What does the triple lock do?
Triple-lock uprating ensures that State Pension rates rise by more than if they relied on a single factor, such as inflation or earnings. The increases resulting from the triple lock build up over time.
By 2023/24 the cumulative effect of the triple lock is that the basic State Pension was nearly £800 a year higher than if pensions had been uprated by either earnings or CPI inflation alone since 2011/12 (as shown in the table below).
It was also around £300 higher per year than if a ‘double lock’ had been applied, whereby pensions are uprated by the higher of earnings or inflation.
The triple lock, along with the introduction of the new State Pension, has increased the value of the State Pension relative to earnings to a level not seen since 1980 (as shown in the chart below), 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.
Following the introduction of the triple lock, the value of the basic State Pension increased from 16.8% to 18.8% of earnings by 2022. The new State Pension was worth 24.5% of earnings in 2022, a slight increase from 24.1% when it was introduced in 2016.
As the triple lock increases the value of the State Pension, it also increases the cost to the government of providing it.
In March 2023, the Department for Work and Pensions (DWP) forecast that total State Pension expenditure in 2023/24 will be £124.3 billion. Based on this forecast, we estimate that total expenditure in 2023/24 would be:
- £114.5 billion – £9.8 billion (7.9%) less – if the triple-locked components of State Pension expenditure had instead been uprated in line with earnings since 2011/12.
- £114.3 billion – £10.0 billion (8.0%) less – if the triple-locked expenditure had instead been uprated in line with the CPI since 2011/12.
- £120.7 billion – £3.6 billion (2.9%) less – if triple-locked expenditure had instead been ‘double-locked’, using the higher of earnings or prices but not incorporating a 2.5% minimum increase, since 2011/12.
Reforms have been suggested to constrain the growth in spending, including further increases in the State Pension age.
How much will State Pensions increase by in April 2024?
The State Pension looks set to rise in line with earnings in April 2024. The latest Office for National Statistics (ONS) figures show that annual growth in employees’ average total pay was 8.5% in May to July 2023. This is the highest figure on record outside of the coronavirus pandemic.
The Financial Times reported that the Government is considering excluding bonuses from the average earnings calculation for next year’s uprating, which could mean that State Pensions increase by 7.8% instead. The rationale is that this would strip out the impact of one-off payments made to NHS staff and civil servants in the summer to help settle pay disputes.
If the 8.5% measure of earnings including bonuses is used:
- The full basic State Pension will rise by £13.30 per week (from £156.20 to £169.50).
- The full new State Pension will rise by £17.35 per week (from £203.85 to £221.20).
Whereas, if the 7.8% measure of earnings excluding bonuses is used:
- The full basic State Pension will rise by £12.20 per week (from £156.20 to £168.40).
- The full new State Pension will rise by £15.90 per week (from £203.85 to £219.75).
Using this lower measure of earnings would save the Treasury an estimated £900 million over the 2024/25 financial year.
The Government is expected to make an announcement on State Pension uprating following the statutory annual review of benefit rates which takes place in the autumn.
Will the triple lock continue?
The triple lock has increased the value of the State Pension, leaving pensioners better off than they would have been otherwise. However, concerns have been raised about its sustainability in the long-term, particularly in light of recent economic volatility which has accelerated expenditure.
The Office for Budget Responsibility has identified the triple lock as a “fiscal risk”. This is due to its upward ‘ratcheting effect’, which leaves the public finances exposed to higher pension costs.
The Institute for Fiscal Studies has pointed out that the triple lock makes planning the government’s finances difficult because the combination of components is difficult to forecast. Their current estimates for spending on the triple lock by 2050 range from £5 billion to £45 billion per year due to this uncertainty.
The Financial Times has argued that linking State Pension increases to earnings growth is fairer and more sustainable than the triple lock.
The Organisation for Economic Co-operation and Development (OECD) has suggested that pensions should be uprated by an average of earnings growth and CPI inflation, alongside additional means-tested support for poorer pensioners.
In a 2022 report, the Work and Pensions Committee recommended that the Government commit to the continuation of the triple lock due to the importance of the State Pension to people’s retirement incomes. It pointed to ONS figures showing that almost a third of working age people do not expect to have any pension provision beyond the State Pension when they retire.
Sir Steve Webb, the former Pensions Minister who oversaw the introduction of the triple lock, has suggested that the policy could be retired once the State Pension reaches a “reasonable” share of average earnings.
What position have the main political parties taken?
There was cross-party support for the triple lock in manifestos for the 2019 general election, although both the Conservatives and Labour are yet to confirm whether the triple lock will remain a manifesto commitment in the upcoming general election.
When recently questioned, Work and Pensions Secretary Mel Stride agreed that the triple lock was unsustainable “in the very, very long-term”. However, he said that at present his party remained committed to the policy.
The sustainability of the triple lock is likely to be a key consideration for future parliaments.
- House of Commons Library, State Pension triple lock
About the author: Esme Kirk-Wade is a statistics researcher at the House of Commons Library, specialising in social security.
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