What is the triple lock pension and how does it affect me?

The ‘triple lock’ is a safeguard that applies to the UK state pension to ensure it doesn’t lose value due to inflation.

In the past, there have been calls to scrap or modify the triple lock, which intensified during the Covid-19 pandemic, amid fears it could become too expensive.

Summary

• The triple lock guarantees the state pension will not lose value in real terms.

• Every year, the state pension increases by the highest out of average earnings, inflation or 2.5%, but it is expensive for taxpayers.

• A financial adviser can help you plan for retirement, including maximising your pensions.

We look at how the triple lock pension works, what it means for you and your retirement income, and what the consequences might be if it were scrapped or amended.

The triple-lock state pension

A triple lock was introduced to the UK state pension in 2010 to guarantee it would not lose value in real terms and would rise at least in line with inflation. 

The three-way guarantee means each year, the state pension will rise by the highest of the following: 

• Average earnings

• Inflation as measured by the Consumer Price Index (CPI)

• 2.5% 

So, if average earnings increased by 3% (and inflation was lower than this), the state pension would also rise by 3%. 

If average earnings or inflation rises by less than 2.5%, the state pension will grow by this amount.

Who qualifies for the triple lock pension? 

If you qualify for the state pension, it’ll automatically be protected by the triple lock. 

To qualify for any of the new state pension, you’ll need at least 10 qualifying years on your national insurance (NI) record. 

You’ll need 35 qualifying years on your NI record to receive the full amount. 

A qualifying year is when you: 

• Work and make NI contributions

• Receive any NI credit if you meet certain criteria

• Pay voluntary NI contributions 

What does the triple lock mean for me?

If you are currently receiving the state pension, the triple lock ensures that your spending power will not diminish over the course of your retirement (as long as all three guarantees remain in place).

It also means if inflation is below 2.5%, your pension increases will beat inflation and improve your spending power.

Why is the triple lock good for pensioners?

It’s important for pensioners that the state pension increases over time.

Retirement can last 20 years or longer, and over such a length of time, prices can increase dramatically. 

Will the triple lock end?

The state pension triple lock is a burden for successive governments, as it has been costly for the taxpayer. 

On a few occasions, the government has considered modifying the triple lock, for example, to replace it with a double lock based on increases in earnings or inflation (whichever is highest). 

This has not been a popular idea. 

With the General Election coming up on 4 July 2024, it’s highly unlikely the triple lock will change, particularly as inflation remains above the 2% target.  

However, if the state pension continues to rise quickly, it may be more difficult to justify. 

The Conservatives and Labour Party have committed to keeping the triple lock, but the former intends also to increase the personal allowance for pensioners if they win, so they pay less tax. 

The personal allowance is £12,570 a year, which the Conservatives froze until 2027-28.

What would happen to my state pension without the triple lock?

The loss of the triple lock would not have a huge immediate impact on current pensioners, especially if it were replaced with a double lock. 

The level of the state pension would still rise with inflation, but it may not exceed it. 

A more pessimistic scenario would be for the state pension to have only a single lock, linked either to earnings or inflation, but not both. 

In this case, pensioners’ spending power might deteriorate over the medium to long term. 

The worst-case scenario would be no lock at all and a return to when increases in the state pension were made at the whim of the chancellor in the annual Budget. 

Any increases only tracked inflation or average wage increases before 1980.  

While the triple lock ending is unlikely, it can’t be ruled out in the long term. 

Ironically, those most likely to be hit hardest by the removal of the triple lock are younger people. Those currently around 10 to 20 years from retirement might feel more impact when the time comes. 

What can I do to safeguard my retirement income?

If you are not yet receiving your state pension and are still working, it is a good idea to save as much as you can into a  workplace  or  personal pension. 

Given that the state pension is far from generous in any case, and the age you can receive it will likely continue to rise, it is sensible not to rely too much on it. 

The state pension should be seen as a supplement to your private pension savings. 

Find out how much retirement income you might receive from your private pension and how to boost it using our pension calculator. 

Unbiased can quickly connect you to a qualified financial adviser who can help you plan for your retirement, ensuring you don’t run out of money during your golden years. 

If you found this article helpful, you might also find our article on how to find or trace a lost pension informative, too.