The state pension Triple Lock is set to change from April 2030 under plans confirmed by Prime Minister Andy Burnham. The current system will remain in place throughout this Parliament before being adjusted as part of wider plans to help fund the Government’s proposed National Care Service.
Under the existing system, state pension payments rise each year by whichever is highest out of average earnings growth, inflation or 2.5%. The proposed changes would remove the automatic link to average earnings, with pensions instead continuing to rise in line with inflation or by a minimum of 2.5%.
However, the Government says pensioners will still be able to share in rising prosperity over the longer term. The plans could mean smaller increases in some years, while generating significant savings for the Treasury.
Five things you need to know
The Triple Lock is changing from 2030. The Government plans to keep the current system throughout this Parliament, but from April 2030, state pension increases will be based on inflation or a minimum of 2.5%, rather than automatically using whichever is highest of inflation, earnings growth and 2.5%.
Pensioners could see smaller increases in some years. Under the current system, the state pension rises in line with whichever is highest of earnings growth, inflation or 2.5%. From 2030, strong wage growth will no longer automatically trigger a matching pension increase.
The pension will still be protected against inflation. The Government says pensioners will continue to receive protection when living costs rise, while the 2.5% minimum increase will remain. Ministers also say the state pension will retain its value against average earnings over the longer term.
The changes are designed to save billions. The Institute for Fiscal Studies estimates the Triple Lock currently adds around £16 billion a year to state pension spending compared with earnings-linked increases. The Government says savings from reforming the system will help fund its planned National Care Service.
Future retirees may be more reliant on the state pension. Around 15 million people are thought to be under-saving for retirement, with women, low and middle earners and self-employed workers among those particularly at risk. The changes could therefore matter well beyond today's pensioners.
What is the Triple Lock and how does it work?
The Triple Lock currently guarantees that the state pension will rise each April by whichever is highest out of three figures: average earnings growth, CPI inflation or 2.5%.
The earnings figure is based on total wage growth between May and July of the previous year, while inflation is measured using the CPI figure for September. This means pensioners are protected if prices rise sharply, while also allowing their income to increase alongside wages. If both earnings and inflation are below 2.5%, the pension still rises by that minimum amount.
What is Andy Burnham planning to change from 2030?
Prime Minister Andy Burnham has said the Triple Lock will remain unchanged throughout the current Parliament, honouring Labour's manifesto commitment. But from April 2030, the system will be adjusted. The state pension will continue to rise in line with CPI inflation or by at least 2.5%, but the automatic link to average earnings will be removed.
Mr Burnham said the change would generate "significant savings", which would be used to help build the proposed National Care Service. He has also said the state pension will continue to hold its value relative to earnings over time, meaning pensioners will still share in rising prosperity.
What could the changes mean for your state pension?
The reforms could mean state pensions rise more slowly than they would under the existing Triple Lock in some years. Jonathan Cribb, deputy director at the Institute for Fiscal Studies, said pensions would still rise in real terms over time but more slowly under the proposed system. In the long run, they are expected to keep pace with growth in employees' average earnings. The exact impact will depend on future inflation and wage growth, as well as how the Government's new system works in practice.
The changes will also affect people who are still working today and will eventually rely on the state pension in retirement. The Pensions Commission has estimated that around 15 million people are under-saving for retirement, with women, low and middle earners and self-employed people among those particularly at risk. It warned the number could rise to 19 million without action.
With traditional defined benefit pensions becoming less common, many future retirees are increasingly reliant on workplace savings and the state pension. Millions have been brought into pension saving through automatic enrolment, but concerns remain that some people are not saving enough, while self-employed workers are not covered by automatic enrolment.
