What is the triple lock pension?
Heard of the ‘triple lock’ pension system but not entirely sure what it is? Not to worry – this Pensions Help Centre guide will explain what the triple lock pension is and how it works.
State pension ‘triple lock’
The triple lock pension was introduced in 2010 by the Conservative-Liberal Democrat coalition government. It’s designed to keep state pension rates in line with the inflation and wage growth rate.
How does the triple lock pension system work?
The triple lock system looks at three different rates to make a decision on how much the state pension rate should increase by. These are:
- Growth in wages rate
- The inflation rate as measured by the Consumer Prices Index (CPI)
The state pension rate will then increase to match whichever rate is highest of these three options: the growth in wages, inflation rates, or 2.5% each year.
In other words, the triple lock ensures that the state pension rate will increase by a minimum of 2.5% each year.
How has the triple lock system impacted state pension rates so far?
In both 2020 and 2019, average earnings decided the pension rate, as this figure was higher than the other two metrics.
However, between 2012 and 2018, there was a fairly even split between which of the figures decided the pension rate each year, with the inflation rate and the minimum figure of 2.5% both being the highest value on three occasions.
Is the triple lock here to stay?
Although only recently introduced, the future of the triple lock has been questioned by many. Some argue that the triple lock system has built inter-generational unfairness between those still working who haven’t seen any wage growth, and those who have already retired.
More recently, the triple lock has been in the news again as Chancellor Rishi Sunak considers getting rid of it to help combat the financial losses caused by the coronavirus pandemic.
With so much money going to support employers, workers and the economy, some feel that scrapping the triple lock will help counterbalance the emergency funds spent.