The prime minister has announced that the pensions triple lock will be scrapped in its current form, to partly fund a national care service.
What is the new policy?
On the existing triple lock, the state pension increases each April by inflation, 2.5% or average earnings, whichever is higher.
From 2030, under what Labour is calling an “adjusted triple lock”, the pension will still rise either in line with prices, or 2.5% each year, whichever is higher – but it won’t rise in line with earnings unless its value has fallen behind. In that case, it will be adjusted so that it keeps pace.
Why the change?
The cost of providing the state pension in the 2026/27 tax year, according to the Institute for Fiscal Studies (IFS) thinktank, will be £154bn, making it the most costly benefit in the UK. Andy Burnham has outlined ambitious plans for a national care service that will need to be paid for.
The new policy removes what thinktank the Resolution Foundation has called the “ratchet” effect, which can happen when inflation is particularly high, as in the aftermath of Russia’s invasion of Ukraine.
That triggers a sharp rise in the state pension. Then, as earnings increase rapidly the following year to catch up, there is another large increase, causing pensions to run ahead of earnings over time.
The government calculates that, relative to the status quo, the new, “adjusted” triple lock should raise an additional £15bn a year by 2040 that could be spent on social care – though that may not be enough to cover the full costs of personal care free at the point of use, as Burnham has promised.
How is Labour justifying the shift?
Labour says pensions have risen significantly relative to average earnings since the policy was introduced during the coalition government – and stress that under the new approach it will still rise every year and won’t fall behind average earnings over time.
By not introducing it until after the next general election, they argue that the public will be given a say – though Burnham made clear Labour’s next manifesto is likely to include a range of other major policies.
The Office for Budget Responsibility has pointed to the triple lock as one of the factors contributing to the unsustainability of the public finances. It predicted that about 9% of GDP would have been spent on state pensions by 2075/76 if the triple lock had remained in place – that’s up from 5% currently.
Experts have also pointed to the unnecessary volatility created by the current approach. Thinktanks including the Resolution Foundation and the IFS have long called for it to be reformed.
Responding to the announcement, the IFS said: “The removal of this permanent ratchet is to be welcomed and marks a substantial step towards a more sustainable and predictable state pension system.”
Why was the triple lock introduced in the first place?
The policy was designed to lift pensioners out of relative poverty. In 1979, the state pension was worth 26% of average earnings, but the link with wages was cut in 1980 and before the triple lock it had dwindled to 16% of average earnings. Pensioners were becoming relatively poor members of society. The triple lock reversed the decline and, according to the Pensions Commission, the full new state pension is worth about 30% of median full-time pay.
Labour says the new policy, while less generous, will allow it to remain at about 30% of average earnings.
Will pensioners be poorer as a result?
About 10% of pensioners are expected to retire in the 2060s with not enough money to meet the minimum needed for a basic standard of living, as calculated by the PLSA (Pensions and Lifetime Savings Association). This is down from 17% of those retiring in the 2020s, and reflects that workers in their 20s have time to build up reasonable pensions under the auto-enrolment system. This could support the argument that a triple lock will be less needed in future as people will have more of their own pension to rely on.
