The Government has confirmed it will change the state pension triple lock from 2029, removing the average earnings measure. Pensions provider Aegon, which manages around £240 billion in assets, has said the benefit will be considered when ministers review public spending.
Government to review all major spending areas
Kate Smith, head of pensions at Aegon, said the state pension will be on the table when decisions are made. She said: "When Governments assess the sustainability of public spending, it’s reasonable that all major areas of expenditure, including the state pension, are considered."
Ms Smith added that the Government needs a forward-thinking attitude in these policy moves. She said: "Whatever decisions are made in future, they should support a sustainable retirement system that is fair across generations. If changes are proposed, people should be given as much advance notice as possible so they can plan with confidence."
What the triple lock change means
Currently, the state pension rises each April under the triple lock, which guarantees payments increase by the highest of average earnings growth, price inflation, or 2.5 per cent. Under new plans announced by Prime Minister Andy Burnham, the wage-growth link will be removed starting in 2029.
Ministers have said pensions will still reflect general wage growth over time. Payments next year are expected to rise by 3.5 per cent based on the September inflation figure.
Bob Tronson, head of pensions at InvestEngine, said removing wage growth could have a major effect, as this measure has historically provided the biggest boosts. He said: "Since the triple lock was introduced, the earnings figure has determined the majority of increases to the basic state pension and two of the three largest increases, including a huge 8.5 per cent rise in 2024."
Impact on retirement income
Mr Tronson said: "Removing the triple lock puts greater strain on people's quality of life in retirement. Had the Government excluded the earnings metric from pension calculations and instead settled on a double lock in 2010, someone receiving the full basic state pension would be £560 a year worse off today, while the full new state pension would be £688 lower."
He said the changes serve as a reminder that workers need to build their own retirement funds. He said: "The state pension already falls well short of providing a good standard of retirement on its own. Moving to a double lock will make it even more important for those still in work to start building their own retirement savings early, whether through a workplace pension or self invested personal pension (SIPP), rather than relying on the state pension alone."
Other state pension changes ahead
The state pension age is rising from 66 to 67 in stages between April 2026 and April 2028. The earliest age to access private pensions will also increase from 55 to 57 in April 2028.
A new tax exemption will mean anyone whose sole income is the state pension will not pay income tax on those payments. More details will be shared during the Autumn Budget on Wednesday, October 28.
