What is triple lock pension and how does it work?

What is the triple lock on pensions? The Triple Lock Pension is a government commitment to increase the value of State Pensions according to the highest of one of three variables: the previous year’s inflation rate, the average increase of wages across the UK, or 2.5%.

The government has been using the triple lock for more than ten years to determine how much the state pension will rise each new tax year, but due to skewed wage growth data during the epidemic, the triple lock was halted for the 2022 tax year.

Despite rumours that the commitment would be put on hold once more in the upcoming year, the Treasury declared that it will be resumed in November 2022. This entails an increase in state pension payments for retirees of more than 10% beginning in April 2023.

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

What is triple lock pension? The triple lock assures that your purchasing power won’t decrease over the duration of your retirement if you currently get the state pension (for as long as all three guarantees remain in place). Additionally, it means that your pension increases will actually outpace inflation if inflation is less than 2.5%, increasing your purchasing power – all the more reason to continue deferring state pension!

Why is the triple lock good for pensioners?

What is pension triple lock and why is it good for pensioners? The state pension’s gradual growth is beneficial for retirees. Your 50s retirement savings might need to last for 25 years or longer, and throughout that time, prices can rise significantly. Take this year’s cost of living crisis for example, in which the cost of everyday items has increased so dramatically that the UK government has had to take extraordinary measures to respond to the cost of living crisis in the UK.

That’s why it’s so important to work with someone to develop sound financial planning that will help support you through retirement – financial advisors can help you come up with an investment strategy and learn how to invest money.

Will the triple lock be taken away?

The triple lock on state pensions has proven to be a burden for some governments because it is expensive for the public. The government has thought about changing the triple lock on various occasions, such as by replacing it with a double lock based merely on increases in incomes or CPI (whichever is the higher). However, voters have so far shown themselves to be opposed to these proposals.

The COVID-19 pandemic has also brought about an additional difficulty. In addition to being expensive in and of itself, the crisis has also resulted in an artificial decline in UK salaries. This might result in state pensions expanding far more quickly than salaries, which the government might find challenging to justify.

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

Current pensioners would not be immediately significantly impacted by the loss of the triple lock, especially if it were to be replaced by a double lock. The state pension’s level would still increase in line with inflation; it would just stop at that rate.

The state pension having just one lock, linked to either earnings or the CPI but not both, would be a more pessimistic scenario. In this situation, it’s possible that over the long run, retirees’ purchasing power may decline.

In the worst-case situation, all locks would be lost, ushering in a time when state pension hikes were merely based on the Chancellor’s whim in the yearly Budget. Although rare, this can’t be completely ruled out in the long run.

Ironically, it is the younger generations that are most likely to suffer the most from the elimination of the triple lock. Since inflation is unlikely to significantly reduce current retirees’ purchasing power over the period of their retirement, they have little to fear. However, people who are now between 10 and 20 years away from retirement age may have greater effects.

How much will the state pension be with the triple lock?

The state pension and a number of other benefits would increase by 10.1%, the government announced in the Autumn Statement, in line with the Consumer Prices Index (CPI) gauge of inflation for September.

Starting in April 2023, for people who reached state pension age after April 2016 and are eligible for the full new flat-rate state pension, payments will reach £203.85 per week (currently £185.15), or £156.20 per week (currently £141.85) for the full old basic state pension for those who reached state pension age before April 2016.

Will all pensioners get the triple lock?

The triple-lock only applies to state pensions, and although the triple lock is a considerable perk, it is generally understood that your retirement cannot be supported by the state pension alone. This is usually why people open different accounts from the different pension options, such as workplace pensions, private pensions or self employed pensions. If you have multiple pension accounts, you can consolidate your funds through a pension transfer.

FAQs

What is the pension triple lock?
Put simply, the triple-locked state pension is a guaranteed percentage rise in the value of state pension benefits, according to the highest of one of three variables.

What does the triple lock mean for me?
If you are of pension age, the triple lock will raise the value of the state pension that you receive each year.

Will pensioners get the triple lock in 2023?
Starting in April 2023, the state pension and a number of other benefits would increase by 10.1%