Martin Lewis has issued a new update on planned changes to the State Pension Triple Lock and what they could mean for pensioners from 2030. The consumer champion said he believes the proposed replacement could be viewed as a “2.5-times lock”, with pension payments still guaranteed to rise by at least inflation or 2.5 per cent each year. However, increases could be higher if the State Pension falls behind average earnings growth over a longer period.
How the new system is expected to work
Writing in the latest edition of the MoneySavingExpert (MSE.com) newsletter, Martin said some people were concerned that changes to the Triple Lock could result in the State Pension remaining static. He stressed that the precise details of the new system are not yet known, but set out how it is currently expected to operate.
The existing Triple Lock has been used to determine annual State Pension increases since 2011. It guarantees payments rise each April by whichever is highest out of average earnings growth, Consumer Prices Index (CPI) inflation or 2.5 per cent.
Martin said: “I've seen the change described as a 'double lock' or 'scrapping the triple lock'. Having looked in detail, I see it more as a 2.5-times lock.
“In simple terms it will still rise with whichever is the highest of inflation or 2.5 per cent, but will rise more than those if it's falling behind average earnings growth over a long period.
“Whether this is a good or bad move is for you to decide. Yet as many are worried it means a static pension, I want to explain how it'll likely work in practice - ‘likely’ as we know the general principles, but not exact details.”
State Pension changes planned from 2030
Prime Minister Andy Burnham announced last week that the Triple Lock would be adjusted as part of plans to fund a new National Care Service. Martin said the change is planned to begin in 2030, although legislation to introduce it is likely to be brought forward during the current Parliament.
The Department for Work and Pensions (DWP) has also published a factsheet setting out how the adjusted Triple Lock is intended to operate. It confirms the UK Government has committed to the existing Triple Lock throughout the current Parliament, before the adjusted system takes effect from April 2030.
Currently, the full New State Pension and Basic State Pension increase each year by whichever is highest out of inflation, 2.5 per cent or average earnings growth. From April 2030, they will instead rise each year by whichever is highest out of inflation, 2.5 per cent or the amount required to return or maintain the value of the State Pension relative to earnings.
The DWP said the change means the State Pension will rise in line with average earnings over time, rather than consistently growing faster than wages. That distinction is behind Martin's description of the system as a “2.5-times lock”.
Rather than automatically matching annual earnings growth whenever it is the highest of the three existing measures, the earnings element would instead be used to maintain the State Pension's value relative to wages over time. The UK Government has also confirmed that the State Pension will continue to increase every year after the changes.
People already receiving the State Pension will continue to receive increases under the existing Triple Lock until April 2030. They will then move onto the adjusted system, with the DWP saying pensioners will continue to be protected against inflation. The department said the full New State Pension is set to rise by more than £2,000 over the course of the current Parliament and reach a record high relative to earnings.
State Pension and tax
The latest MSE newsletter also highlights how close the full New State Pension is now to the standard tax-free Personal Allowance. The full New State Pension is currently £241.30 per week, equivalent to £12,548 a year, while the full Basic State Pension is £184.90 per week, or £9,615 annually. The standard Personal Allowance is £12,570.
Martin said the State Pension is taxable income and warned that the full New State Pension is now just £22 below the Personal Allowance. The Triple Lock is currently on track to be determined by the earnings growth element of 3.9 per cent (including bonuses). The CPI for September will be published on October 20 and is currently 3.1 per cent.
Chancellor John Healey will confirm the annual uprating at the Autumn Budget on October 28, however, an uprating of 3.9 per cent would see people receive the following amounts: Full New State Pension weekly £250.70 (from £241.30), four-weekly pay period £1,002.80 (from £965.20), annual amount £13,036 (from £12,547). Full Basic State Pension weekly £192.10 (from £184.90), four-weekly pay period £768.40 (from £739.60), annual amount £9,989 (from £9,614).
Guidance on GOV.UK states: “You pay tax if your total annual income adds up to more than your Personal Allowance. Find out about your Personal Allowance and Income Tax rates. Your total income could include: the State Pension you get - Basic or New State Pension, Additional State Pension, a private pension (workplace or personal) - you can take some of this tax-free, earnings from employment or self-employment, any taxable benefits you get, any other income, such as money from investments, property or savings.
The MSE newsletter also adds that the Treasury has said it will keep its pledge that people whose only income is the State Pension will not have to pay tax as a result of the increase.
