What is the State Pension “triple lock” and how much is it worth to you?
As we process November’s autumn statement, there are plenty of positives to take forward into the new year – especially if you have a State Pension.
Before the announcement, there were talks that the triple lock on the State Pension could have been suspended during 2023, as it had been for 2022.
However, since the triple lock will be reinstated for 2023, it can be useful to revisit the specific effects of the triple lock on the State Pension and how it could be important to you and your income.
This could be pertinent to your retirement plans as the Office for National Statistics (ONS) projects life expectancies in the UK to rise: men in the UK aged 65 in 2020 are expected to live an average of a further 19.7 years, while the average woman can expect to live for a further 22 years.
Meanwhile, for people aged 65 in 2045, the ONS predicts the average life expectancy following retirement age to rise to 21.9 years and 24.1 for males and females respectively, which could mean you need additional funds to retire comfortably.
So, read on to discover important details about how the triple lock works and how your State Pension could be affected by recent events.
The triple lock ensures the State Pension increases in line with 3 key measuring criteria
The triple lock was introduced by the Conservative-Liberal Democrat coalition government in 2010 as a way to protect basic State Pension incomes from losing value against rising costs of living, rates of inflation, and the national average salary.
This was partially done to reverse the loss of value from pensions that came about from the decision in 1980 to link the State Pension to national earnings.
In fact, according to the Trade Union Congress, the basic State Pension had lost around 40% of its value relative to average earnings in the 30 years since it was linked to them.
The triple lock works by raising the State Pension in line with the highest of these three measures:
Average wage growth between May and July against the same period the previous year
Inflation – measured by CPI in the year up to September.
If there are any increases to be made, based on these metrics, they are normally announced in November before being implemented on 6 April the following year.
The triple lock protects the State Pension from the effects of inflation, which is vital for many retirees
While it would seem only fair for your pension income to maintain its value against the wider economy, the triple lock isn’t necessarily guaranteed each year.
Indeed, the triple lock was suspended in 2022 after fears that the measured national average wage had been distorted upwards through the disruptions to employment caused by the Covid-19 pandemic.
Ensuring fair rises in the State Pension can be very important for many retirees, especially considering that at least 17% of over-55s in the UK have no savings besides their State Pension, as PensionsAge reports.
In addition to this, PensionsAge reports that 39% of the same age group expect their State Pension to be their main source of income in retirement.
Clearly, with the State Pension forming such an important part of retirement plans across the country, the existence and reinstatement of the triple lock could play a significant role in spending your retirement the way you planned.
The triple lock will be honoured in 2023
In the autumn statement, Jeremy Hunt confirmed that the triple lock will apply in 2023. So, if you have a State Pension, your pension is set to rise in April 2023 according to the highest of the three measures mentioned above.
In this instance, inflation is the highest figure of the three – the ONS reports this as 10.1% in the year to September 2022.
As a result, the State Pension will follow suit and rise by 10.1%. For someone on the full new State Pension, this represents an increase of more than £900 a year.
If you’re not yet retired, this will still benefit you as the increase will be “baked into” the State Pension for future years.
In his autumn statement, the chancellor said the rise “represents the biggest ever cash increase in the State Pension”.
He added: “To the millions of pensioners who will benefit from this measure I say – now and always, this government is on your side”.
Get in touch
If you’d like to fully understand how the triple lock may affect your State Pension, or you’d like to establish the part the State Pension will play in your retirement income, we can help.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
14 Dec 2022
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