Money expert Martin Lewis has set out what is “really likely to happen” after Prime Minister Andy Burnham announced that the triple lock is set to be axed to help pay for social care. The financial expert took to his X account to tackle the confusion surrounding the change, including the mistaken belief that it means the state pension won’t rise at all.
The triple lock is the financial mechanism through which the DWP state pension payments are automatically increased each year, by the highest of one of three metrics: inflation, wage growth or a flat 2.5%. But Mr Burnham has called time on the policy, setting out that from 2030 wage growth won’t be included in the calculation, only inflation or the flat 2.5%. Average earnings will instead be indexed over a longer period, rather than each year.
What Martin Lewis said
Responding to the news, Martin Lewis explained: “Many are confused, and think the State Pension won't rise. Actually the change is subtle, it's about loosening, not ending, one of the three locks - the link to average earnings. So I want to try to explain as simply as I can.”
He added: “The State Pension(s) will rise each April by at least the higher of:- 2.5% - CPI inflation. The 'at least' is because it will also rise due to average earnings, but not specifically for that year instead over a longer period.”
“Yet the exact mechanisms aren't set out, so I'm going to use one example of a way it could work, where the rise keeps up with average earnings since the system start date of 2030, as I think it's easier to understand.”
Hypothetical figures set out
Martin then set out the exact figures in a hypothetical scenario:
Current system: Year 1: Inflation 3%, earnings up 2%. Pension rises 3%. Year 2: Inflation 4%, earnings up 6%. Pension rises 6%. Year 3: Inflation 3%, earnings up 1%. Pension rises 3%. TOTAL RISE: 12.5% over the 3 years as the increases compound.
New system: Year 1: Inflation 3%, earnings up 2%. So it rises 3%. Year 2: Inflation 4%, earnings up 6%. He added: “A rise of only 4% would be a total rise since the start of 7.1%, yet that's less than the total rise in average earnings of 8.1%. So the Pension would rise about 5% that year to match the total rise in average earnings. Year 3: Inflation 3%, earnings up 1%, so it rises by 3%. TOTAL RISE: 11.4% over the three years.”
Impact of the change
The Prime Minister said his proposed changes to the triple lock would be sufficient if the care system is progressively introduced. Mr Burnham announced during his Labour conference speech on Tuesday that he would end the policy which guarantees increases to the state pension in line with inflation, earnings or 2.5%, according to whichever measure is highest. Instead it could rise in some years in “relative” value to earnings. It is hoped the measure will generate about £15 billion a year by the end of the 2030s.
