In April the UK’s state pension system will undergo radical transformation. This move from universalism to targeting is largely a result of one policy, the “triple lock.” This system ensures that both basic and new state pensions will increase based on the highest of three figures: inflation, average wage growth, or a fixed increase of 2.5%. The then coalition government brought in the triple lock in 2011. This policy subsumed pensioners entirely from inflationary pressure and made them financially secure. As of August, close to 13.1 million people depend on public sector pensions. This information is provided by the Department for Work and Pensions.
The coming changes represent a really big jump in pension value. Normal full new state pension is due to rise by almost £11 – £10.9. This would raise the weekly figure to roughly £241, or just over £12,534 for the year. At the same time, full basic state pension is likely to increase by 4.7%, raising it to £184.75 per week or £9,607 per annum.
Current State of Inflation and Pension Adjustments
Inflation is extremely important in calculating the pension increase under the triple lock system. Data from the consumer price index (CPI) for September will be critical in shaping these increases. In the most recent month, inflation remains high at 3.8%. Experts don’t expect it to rise above the 4.7% figure, even when the September jobs figure is released next month.
The government needs to make its final decision on pension increases before the new budget, due on November 26. This decision will have tangible consequences on the financial futures of millions of pensioners nationwide.
“Increasingly the debate appears to be framed as triple lock or nothing when it comes to increasing the state pension,” – David Brooks
In addition, there are serious issues with how these increases compare to the usual, tax-free, personal allowance – now £12,570. As pension rates continue to creep up towards this limit, the impacts spilling over into the taxation space could be significant.
Government Commitment to the Triple Lock
In a recent announcement, Work and Pensions Secretary Pat McFadden reaffirmed the government’s commitment to maintaining the triple lock throughout this parliamentary term. This pledges to protect pensioners with the help they have been receiving, even as living costs are increasing sharply.
The government must be held accountable for its commitment to maintain this system, especially with presents itself a growing economic headwinds. Pensioners advocates such as Age UK are making the case for keeping the triple lock strong. First, it shields the most vulnerable—it protects people who depend only on state pensions.
“But most would consider it fair that the state pension should increase, and the government has repeatedly committed to it for the remainder of this parliament,” – David Brooks
As pension reform debates across the country continue to rage, Former pensions minister Steve Webb has issued a warning that come April 2027, everybody who is dependent on the new state pension will be considered as taxpayers.
Implications for Future Pensions
Critics of the triple lock system have raised concerns regarding its sustainability. The increasing state pension rates could lead to higher tax burdens for individuals whose only income source is their state pension. This reality raises the most important question of all. How do we build a long-term system as the economy changes?
We know that the government is already setting their sights on next year’s budget advocacy. How these decisions will affect existing and future pensioners is a principal concern of stakeholders. The impact of these decisions might reach further than just short-term financial savings, affecting how the public views government action and accountability to its voters and taxpayers.