UK State Pension Triple Lock: How it Works + 2024 Projections

The triple lock is a safeguard the UK government introduced to ensure the State Pension remains financially viable for pensioners.

It protects the value of the State Pension from decreasing over time to maintain the purchasing power of pensioners.

Let’s explore the intricacies of the triple lock system and find out how it affects you. We’ll also discuss the uncertainty around its future and other related topics.

What Is the Triple Lock Pension in the UK? 

The triple lock is a government guarantee that the State Pension payments won't erode with rising inflation. It applies to everyone receiving the basic State Pension (pre-April 2016) and the new State Pension (post-April 2016).

The triple lock guarantee was introduced in 2010 by the coalition government led by then-Prime Minister David Cameron. 

The 'triple' stands for the three safety locks to which the UK government ties the annual State Pension increases — which we’ll discuss next. 

How Does the Triple Lock on the UK State Pension Work?

Each year, the UK government increases the State Pension by the highest of the following three components:

• The rate of inflation as measured by the Consumer Price Index, or CPI (September reading in the previous year)

• The average increase in earnings (measured by the Office of National Statistics between May and July of the previous year)

• A baseline rise of 2.5%

For example:

Suppose the average earnings increase by 2% in a given year, but inflation rises faster, say 3%.

In the next year, the State Pension wouldn't just increase by 2% to match earnings growth; it would increase by 3% to keep pace with inflation.

If the CPI inflation and average earnings increase at a rate lower than 2.5%, the State Pension would still rise by the baseline rate of 2.5%.

The 2023 Triple Lock Example

In the tax year 2023-24, the UK State Pension saw a 10.1% increase over the 2022 rates.

• The standard rate basic State Pension rose from £141.85 to £156.20 per week.

• The full New State Pension rate grew from £185.15 to £203.85 per week.

But why a 10.1% increase?

According to the United Kingdom Treasury data, inflation grew by 10.1% in September 2022 — higher than the 5.2% earnings growth and the 2.5% baseline.

UK State Pension & Triple Lock in 2024

On November 22, 2023, the UK’s Chancellor, Jeremy Hunt, announced that the triple lock-protected pension is set to increase by 8.5% starting from April 6th, 2024.

The increase is in line with the average increase in earnings of UK employees, which was 8.5% between May and July 2023, as well as the CPI inflation rate, which stood at 6.7%.

So, in the tax year 2024-25, the UK State Pension will be: 

• £221.20 per week (full new State Pension rate)

• £169.50 per week (basic State Pension rate)

3 Ways the State Pension Triple Lock Scheme Benefits Pensioners

Here are three significant advantages of the triple lock pension system:

1. Safeguarding Retirement Income from Inflation

The triple lock uprating ensures that pensioners’ income is steady and in line with the rising cost of living.

For instance, if price inflation hits 3%, the State Pension rises by 3%, protecting retirees from reduced spending power.

As mentioned earlier, inflation in the UK rose to 10.1% in September 2022, but pensioners were cushioned by the triple lock, receiving a 2023 State Pension increase consistent with inflation rates.

2. Guaranteed Minimum Increase

The triple lock guarantees pensioners a minimum annual increase of 2.5% on their State Pension.

So, in a year when price inflation and wage growth are low (below 2.5%), pensioners will still see an increase in their pension payments.

3. Wage-Adjusted Pension Growth

The State Pension triple lock ensures that pensioners are not left behind as the nation’s earnings rise.

For instance, in 2019, wage growth was at 3.9%, and under the triple lock, the 2020 State Pension increased accordingly – from £168.60 to £175.20 per week.

But with all its benefits, the State Pension triple lock system has had moments of uncertainty.

Why Was Triple Lock Protection Suspended in 2022?

In a surprising move, the Prime Minister at the time, Boris Johnson, forfeited the triple lock protection for the 2022 State Pension increase.

The reason?

The economic upheaval from the Covid-19 pandemic.

According to the United Kingdom Office for National Statistics, there was a significant surge in average wage growth between April and June 2022.

Following the pandemic, wages rebounded sharply as furloughed workers returned to employment.

This would’ve triggered a disproportionately large increase in the State Pension under the triple lock uprating formula, putting the government under immense financial strain.

The situation prompted the UK government to temporarily suspend the pensions triple lock for 2022-23.

So, in the tax year 2022-23, the State Pension was paid at a weekly rate of:

• £185.15 (full-rate new State pension) 

• £141.85 (basic or old State Pension) 

But on what basis did the State Pension increase in 2022-23?

The government based the State Pension increase on the inflation rate of 3.1% for the given period. The goal was to aim for a balance between protecting pensioners’ income and managing budget responsibility.

The suspension of the triple lock in 2022 was temporary. But it has raised many questions about the scheme's future.

Is the Triple Lock for the UK State Pension Getting Scrapped?

Despite mounting pressure, Prime Minister Rishi Sunak has reassured vulnerable pensioners that the triple lock is here to stay — at least for the time being. 

However, unlike the currently in-power Conservative Party, the Labour Party hasn't committed to continuing the triple lock policy if it comes to power in the upcoming 2025 general election.

Concerns Against the Triple Lock Pension in the UK 

Supporters of the UK triple lock pension argue that it’ll help ensure better retirement incomes for current and future pensioners, especially low-wage earners heavily relying on the UK State Pension.

However, those against it give the following reasons: 

• Ratchet Effect Highlighted by OBR: 

  • The Office for Budget Responsibility (OBR) identifies a "ratchet effect" with the triple lock pension and its impact on the UK’s public finances. This occurs when government expenditure rises due to increased State Pension rates. 

  • For example, suppose the government raises State Pension rates due to high inflation. In that case, it may lead to a continuous and upward trend in pension spending since pensions aren’t usually adjusted downwards.

• Concerns About Fairness: Some people believe it's unfair for younger people to contribute significantly to the incomes of older individuals through the triple lock. It may give older individuals higher living standards than what the younger generations will experience upon retirement.

• Doubts About the Long-Term Sustainability: There are doubts about the long-term sustainability of the triple lock pension, primarily due to recent economic fluctuations and the increasing government spending on the State Pension.

What’s more?

The 2023 State Pension rise increased the government’s pension expenditure by £11 billion. 

In 2024, the State Pension will increase by 8.5%, which means that the total pension expenditure of Britain is expected to rise and hit £135 billion by 2025.

Financial experts also predict that by 2025, the State Pension spending could cost Britain more than the combined spending on education, policing, and defence.

A study by the Institute for Fiscal Studies also noted that the triple lock complicates financial planning for the government. 

As a result, economic experts suggest that a ‘double lock’ system could be a more sustainable alternative.

What is a double lock system?
A double lock would link the State Pension increases to inflation or average earnings growth (whichever is higher) and exclude the 2.5% baseline increase option.

The former British Prime Minister Theresa May proposed replacing the triple lock with the double lock in 2017. But, the idea needed more support back then and couldn't be implemented.

So, is the current UK pension system reliable with all these concerns against the triple lock?

Let’s discuss that next. 

How Does the UK Pension System Compare to Other European Pensions?

Mercer CFA’s (Chartered Financial Institute) global pension index 2023 ranked the UK's pension system at the 10th position, with countries like the Netherlands, Iceland, and Denmark taking the top 3 spots.

A similar study by Penfold discovered that approximately 15.5% of pensioners in the UK live in poverty, while in countries offering more robust pension plans, only 3% of pensioners experience financial challenges.

The UK government introduced the triple lock State Pension guarantee to overcome these challenges and enhance the pension system's sustainability.

This was a pivotal step since the UK's pension system isn’t as strong as in countries like the Netherlands, Iceland, and Denmark. 

Why?

All three countries have large industry funds where workers and employers contribute a set amount towards the pension pot. They also offer mandatory or semi-mandatory pension schemes, which ensures citizens benefit from a more extensive and organised pension system, resulting in substantial benefits and improved living standards.

If the UK’s triple lock State Pension is removed, it might not significantly impact current pensioners, especially if it’s replaced with a 'double lock’. 

However, the main issue is that although the State Pension would continue to increase with inflation, it won’t exceed the inflation rates.

The bottom line?

Considering the uncertainties surrounding the government's triple lock guarantee, you must find other ways to make your retirement income inflation-proof.

4 Ways to Protect Your Retirement Income From Inflation

The best way to safeguard your retirement income from inflation is to plan ahead and make additional contributions to your pension pot. Also, consider investing in securities that promise good risk-adjusted returns.

This approach also ensures you have a sizable pension pot if you’re planning an early retirement.

Here are five ways to do this:

Note: This information should not be treated as expert financial advice. Consult trusted financial advisors for accurate pension advice based on your circumstances.

1. Contribute More to Workplace or Private Pension Schemes

If you’re eligible for the UK auto-enrolment pension, your employer will typically enrol you in their workplace pension scheme.

To boost your workplace pension pot, you can:

• Contribute more to your pension fund than the minimum auto-enrolment limit of 5%.

• Make one-off lump sum payments into your pension fund.

• Speak with your employer on ways to maximise your pensionable earnings.

If you’re an employer, you can contribute more to an employee’s pension fund than the required auto-enrolment minimum (3% of pensionable earnings).

But that could be challenging if you already spend excessive time and money managing your workplace pension scheme.

This is where Kota can help.

Set Up Cost-Effective UK Workplace Pension With Kota

Kota is a digital pension platform that lets you offer a workplace pension scheme to your UK team without the burden of brokerage and administrative costs.

We’ve partnered with Smart Pension, a trusted pension provider in the UK, to help employers set up and manage pensions compliantly from anywhere in the world.

With Kota, you can:

• Offer employees more freedom to track pension savings through a digital app.

• Contribute the required auto-enrolment minimum of 3% or even up to 8%.

• Integrate existing human resources (HR) and payroll tools to reduce administrative work.

• Assess and re-enrol employees with ease every three years.

• Postpone auto-enrolments for up to three months compliantly. You can even automate the process to create a standard postponement period for your team.

2. Invest in an Individual Savings Account (ISA) or Lifetime ISA

An individual savings account is a tax-efficient way to save and withdraw money. It allows you to save up to £20,000 per year in cash or investments.

Similarly, a Lifetime ISA (LISA) is a government-backed savings account designed to help you save for a first home or retirement.

The government adds a 25 per cent bonus on your yearly contributions, up to £4,000 per year, making it a smart, inflation-beating option.

3. Delay Taking Your Retirement Income

You give your pension pot more time to grow when you delay taking your State Pension payments.

This approach increases your monthly pension payments and fortifies your income against the erosive effects of high inflation.

4. Use the Salary Sacrifice Scheme

A salary sacrifice scheme lets you reduce your take-home salary and instead put the amount into your pension fund (or other non-cash benefits).

It reduces your taxable income, so you’ll have to pay less income tax. This leaves you with more money to invest in your pension fund.

Secure Your Pension Income Above and Beyond the Triple Lock

The UK government’s triple lock policy protects your retirement income from inflation.

While the current government has committed to continue the policy, its future remains uncertain.

So, you must consider other avenues to boost your pension income.

If in doubt, seek professional financial advice to plan your post-retirement finances and protect them from economic uncertainties. So consult advisers who are authorised and regulated by the Financial Conduct Authority in the UK.