By using this website, you agree to our use of cookies to enhance your experience.
We have 1 guests online 
Sign up

Is the end in sight for the triple-lock on state pensions?

Monday 22nd May 2017

Written by Martin Upton

The Conservative’s general election manifesto includes the plan to end the triple-lock on the annual increases in state pensions from 2020. This news comes as no great surprise as the proposal has been mooted for some time. But with both Labour and the Liberal Democrats pledging to keep the triple-lock there is clearly some opposition to a move that could adversely impact pensioners.
The way the triple lock works is that the annual increase in state pensions is currently the highest of price inflation (as measured by the Consumer Prices Index), earnings inflation and 2.5%. So if both price and earnings inflation are below 2.5% then state pensions are increased by 2.5%. The Conservative’s plan is to ditch this 2.5% element of the triple-lock. This would mean that state pensions would increase each year by the higher of price inflation and earnings inflation. So this new double-lock would supersede the triple-lock.
On the face of it the move to a double-lock does not look to be particularly ungenerous to pensioners. After all one or both of price inflation and average earnings have normally been above 2.5% in recent decades, and in this situation the 2.5% element of the triple-lock is redundant. The new double-lock means that state pensions will increase as a percentage of average earnings and be stable in real terms when price inflation exceeds earnings inflation (as here the annual increase would be based on price inflation). Alternatively state pensions will increase in real terms and keep pace with earnings growth when earnings inflation exceeds price inflation (as here the annual increase would be based on earnings inflation). 
Either way the double-lock would at least preserve the real value and purchasing power of state pensions. So why do some parties oppose the move to it?
Opponents of the plan point to the fact that state pensions in the UK are low relative to those seen in other European countries. So any move that could reduce the scale of pension increases should be resisted. Additionally in periods of low price and earnings inflation – which we have indeed been witnessing in recent years – both inflation rates could be below 2.5%. The absence of the triple-lock would mean pensioners losing out in these circumstances. There would also be the political embarrassment when the paltry cash amounts of state pension increases are announced!
Perhaps this debate about the triple-lock on state pensions should focus our minds on what we will get when we reach state pension age. Even those on the full new (‘flat-rate’) state pension only get £8.3K per year in 2017/18 – clearly not enough to live comfortably even if major financial commitments, like mortgages, have been paid off. Maybe it’s a good time for us all to check if our other pension plans will sufficiently supplement what we get from the state to ensure an enjoyable retirement.
*Martin Upton is Director of True Potential PUFin

blog comments powered by Disqus
If you have any questions or suggestions about this article or our news section, please don't hesitate to contact us.

Editorial Contact Details - Conor Shilling
0845 672 6000
Related News Stories
Most Read News Stories