The Government recently announced the triple lock will change in a few years' time, but state pensioners may wonder if the policy could be watered down even before then, given the uncertain times. Catherine Foot, director of thinktank Standard Life Centre for the Future of Retirement, addressed this question.
She said: "The Government has committed to maintaining the triple lock, and it would be difficult to speculate on how future economic shocks might affect that commitment."
"What matters is that any decisions strike a careful balance between supporting today's pensioners and ensuring the system remains fair and sustainable for future generations."
Precedent for changing the policy
With on-going international conflicts in Iran and Ukraine, there is the potential that the economic situation could suddenly change in the UK, which may influence policymakers. There is precedent for the Government changing the policy in exceptional circumstances.
For the April 2022 increase, the Government decided not to apply the average earnings metric, after the sudden rise in average earnings when the Covid-19 furlough scheme came to an end. Instead payments went up with inflation, lifting the state pension by 3.1 per cent.
The triple lock policy means payments go up each April in line with the highest of three numbers - either the rate of inflation, the rise in average earnings or a minimum of 2.5 per cent.
'Important role' and future changes
Ms Foot outlined the dilemma facing the Government with the rising state pension bill. She said: "The triple lock has played an important role in protecting pensioner incomes and supporting living standards, particularly during periods of high inflation over the last few years."
"At the same time, the state pension also represents a significant public finance commitment, so questions around its long-term affordability and sustainability are understandable."
Prime Minister Andy Burnham announced at the Labour Party conference recently that the policy will be changed from 2029, so the average earnings measure will be removed. The PM assured that payments will still keep track with the rising in earnings over time.
Ms Foot said it's important people know what's going on with their state pension. She said: "Crucially, people need clarity and confidence about what they can expect from the state pension, so they can plan effectively for retirement."
Two imminent changes to the state pension
Two important changes to the state pension rules are taking place very soon, with one already underway:
- State pension age increase - The age you can access your state pension is increasing from 66 to 67. This is happening in stages, with the process starting back in April 2026 and completing by April 2028. Also on April 2028, the age you can access your private pensions will move up from the current 55 to 57.
- New tax exemption - The Government is introducing a new policy so that people whose only income is that full new state pension, without any additional amounts through the scheme, will not pay income tax on their payments. Ministers are expected to provide more details about how this will work at the Autumn Budget, on Wednesday, October 28.
