What the controversial triple lock means for state pensions

The state pension triple lock could be means-tested under a future Tory government, Conservative leader Kemi Badenoch has suggested.

Speaking on an LBC phone-in, she said that, while her party had supported the policy throughout their 14 years in government, going forward there was a need to "solve the problem" of growth and her party would be "examining means-testing" as a way to reduce the pensions budget and "give something to the next generation".

Badenoch later clarified that she was not talking specifically about the triple lock, said The Telegraph. But Labour has been quick to reassure pensioners, with Pensions Minister Torsten Bell confirming that the triple lock will stay in place.

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The idea of making changes to the triple lock has been floated around by economists and politicians for several years, especially given the year–on-year increases of the sum.

In April 2024, the state pension increased by 8.5% to £221.20 a week for the new state pension, and £169.50 a week for the old basic state pension - the latter intended for those who reached retirement age before 2016.

Further increases are due this year, "a rise of £363 a year" for those "on the full old basic pension", and offering "£472 a year" for those in receipt of the full new state pension, said the BBC.

But Badenoch's intervention means she has now been accused of "putting pensioners on notice", said The Independent, with the government claiming the party has "let the mask slip".

What is the triple lock?

The triple lock is a policy introduced in 2010 by the coalition government. It was designed to help protect pensioners' incomes by increasing the state pension in line with average wages, inflation, or by 2.5%, whichever is higher.

The wage data is based on pay growth figures for May to July, released in September by the Office for National Statistics. In 2024, average wages excluding bonuses "rose 4.1% between May and July", said The Times Money Mentor, and this is the figure which will be used for the triple lock in the coming year.

The Institute for Fiscal Studies (IFS) has warned the triple lock is "increasing public finance pressures" and risks the sustainability of the state pension system, creating "heightened uncertainty" for people retiring in the future.

Why is the triple lock so controversial?

There are "issues and challenges" around funding the triple lock, explained Unbiased.

Department for Work and Pensions spending on the triple lock has increased from £69.8 billion when it launched in 2010 to £104.9 billion in 2021/2022, making it a "politically emotive" subject that, considering the ageing population and falling birth rate, won't go away any time soon.

The IFS said the triple lock has added £11 billion to spending on the state pension in 2023/2024 and will cost an extra £2 billion in 2024/2025.

Economists often criticise the triple lock as being "too expensive to maintain", said The Times Money Mentor, with about 60% of welfare spending going towards pensioners. Critics also suggest there is "intergenerational unfairness". Should younger people "subsidise the income of older people at a time when they may be struggling with their own living costs"?

By how much could the state pension rise?

Those on the full new state pension will now receive £230.25 a week from April 2025 because of the triple lock guarantee.

But while the figures suggest this is a substantial increase, this "doesn't reflect the reality on the ground for many", said MoneySavingExpert. In fact, only "one in four" pensioners will get this increase, as it only applies to those who hit state pension age on or after 6 April 2016.

As the "majority are still on its predecessor", the 4.1% rise will mean a "smaller figure" of £176.45 a week in the coming year.

However, while pensioners and those approaching retirement may be looking forward to the increase, due to frozen tax thresholds, pensioners are "facing a 'retirement tax on their state pension income within two years", said The Telegraph. The Labour government has "vowed" to keep the tax threshold frozen at £12,570 until 2028, similar to the Conservative policy, and so pensioners on the full sum will only need a small amount of extra income to put them in the tax net.

What is the triple lock alternative?

While the triple lock is staying in place "for now", the policy is becoming increasingly expensive, said The Times Money Mentor. By this year, the newspaper estimates state pension spending will cost the country "more than education, policing and defence combined". Reforming the policy is not a far-fetched idea, and the government could suspend the policy if necessary.

In 2022-23, the Conservative government did temporarily remove earnings from the equation, due to a "post-lockdown spike in wages", said NerdWallet, and use the inflation measure of 3.1% to increase pensions that year.

Alternatively, a "double lock" system could be implemented, which would "remove the minimum guaranteed 2.5% increase", said MoneyWeek. This option would see the state pension rise only in line with earnings growth or inflation.

A more "pessimistic scenario", added Unbiased, would be for the state pension to have only a single lock, linked either to wages or inflation, but this may mean pensioners' spending power is reduced over the medium to long term.

The worst-case scenario would be returning to when the state pension was "simply made at the whim of the chancellor", the financial website added.

The Organisation for Economic Co-operation and Development has proposed indexing pensions to an average of inflation and wage growth, while "providing direct transfers to poor pensioners to mitigate poverty risks".

Another "solution" would be to "make people work longer", said The Telegraph's Mattie Brignal, by raising the state pension age, which is currently at 67 for both men and women born in or after 1960, and set to rise to 68 for those born in or after 1977.

An increase to the state pension age has previously served as a "silver bullet" in order to "keep the state pension system ticking along", but is "deeply unpopular".

While neither party has plans to increase the state pension age, "in reality" there may be "little choice" in the future.