Those of you who read my blog a lot will know that there is only one person who knows the state pension who is an actuary and a pension expert. I will not name him but this is his response to my blog today, It needs its own blog. It gives an insider’s view on what the triple lock really is, how we got to it (politically) and how it can be replaced by a more sensible way of managing state pension increases. Here goes….
I hate most of the comments on the triple lock.
For a start they fail to explain it properly.The law required the annual indexation at least in line with earnings. I don’t know why but that at least is there.But I know when it was planned to change from prices to earnings, no one discussed higher than earnings.This year will be in line with earnings. I don’t see that as the triple lock. It is the legal minimum.The triple lock is the extra promise which politicians loaded for political reasons.There was a hike in the basic state pension in moving to the new basic. But not for older pensions. They might have had SERPS (and GRAD) which complicated the argument about older pensioners being worse off because their basic is lower. Some are worse off (but may get means tested top ups) and some are actually better off than some on the new rate.But there is an argument that it should only be the pensioners on the old lower basis who may get an increase higher than earnings and catch up on the new rate which should be increased by the legal earnings linked rule.I do not support the triple lock. If we want to raise the new basic state pension, do it transparently and honestly.Hopefully we will have a move to lower inflation and earning increases soon and the then government will have the nerve to avoid the 2.5% minimum, if higher than earnings or prices.Worth noting that (2.5%) is now well over £5 a week, much higher than the increase which was below £1 which gave rise to this nonsense.But more simply, I wish politicians didn’t feel a need to stress that this is a triple lock increase. It isn’t.
It would be helpful if we could be reminded when and how the earnings link was made law, please.
Yes, thats a good one. Also, what is/was the law controlling the GMP last century that seems to have disappeared in current government thinking!
There are three important dates, because the history is slightly more complicated than “earnings link followed by triple lock”:
1974: State pensions were first uprated by the higher of price inflation or average earnings growth. This was an earnings/price “double lock” of sorts.
1979/early 1980s: The earnings link was removed. From 1980, the Basic State Pension was generally uprated in line with prices, rather than earnings. This meant that over time pensioners could fall behind working-age incomes when earnings grew faster than prices.
2011: The earnings link was restored, but as part of the new triple lock: the Basic State Pension would rise by whichever was highest of earnings growth, CPI inflation, or 2.5%.
The policy was announced in 2010 and implemented from April 2011.
The Pensions Act 2007 had already legislated for the earnings link to be restored, by 2015 at the latest. The Coalition Government brought that forward and turned it into the triple lock in 2010/11.
The 3.9% rise in 2027 will add to the arguments about intergenerational fairness and calls for a simple or smoothed earnings link. In the 17 years which the Triple Lock has applied, earnings have driven the increase seven times, inflation six times and the 2.5% floor, four times.
The 3.9% increase compares with a projection of 3.7% in the March 2026 Economic and Fiscal Outlook from the Office for Budget Responsibility (OBR). At an annual £13,031, the new state pension will be £461 above the personal allowance. In her last Budget, Rachel Reeves promised to address this point for those who would otherwise be non-taxpayers
Those self-employed amongst us (interest disclosed) will get £192.05 on the old system compared with £250.60
If we have any change left over on death, our kids will pay 67%-70% in IHT and IT Unless they increase taxes on the prudent at the end of October
Hello Henry,
Being someone who relies on the National Pension, I obviously support your correspondent’s view. In order to get an extra pension, I worked until close on 70 years of age, only to find that I became taxed on the basic pension (perhaps I wasted my time).
However (as a punter) it does seem to me that Triple Lock/Fears of AI/ Boat People are an easy subject for journalists to write about, especially if they wish to ‘get up the Government’s nose’. I trust that they write in the confidence that their own private pensions are (to use old words) ‘copper-bottomed and gold-plated’ and are not with a UK business that is likely to be bought out by a USA firm.
A journalist whose articles I used to like when you copied them was Ms Jo Cumbo. On her final seminar with you, the subject of the fears regarding Triple Lock were discussed. Jo’s reply was that she had a ‘split view’. On the one hand there were increasing liabilities while, on the other hand, she was going to need it! That is good enough for me.
Kind regards,
Tim Simpson
Pension Credit, the guarantree element of it at least, is tied by law to the annual earnings increase. The triple lock could have been applied to that, ensuring a real increase in spending power for the poorest pensioners, it wasn’t. One effect of the triple lock is to reduce the numbers claiming benefits, with all the political advantages that brings, as the gap between nSP and Pension Credit increases. The triple lock itself assumed that when earnings and inflation were both below 2.5% a year then the country was in a state of prosperity that could afford to give pensioners a real increase in income. The inflation lock ensured that there wasn’t a real reduction and the employment link has always meant that the retirement shock between loss of earnings and start of SRP didn’t grow too much.
How about a double lock i.e. 0% and CPI%? So if CPI increase were to be negative you’d get 0% i.e. preserve your nominal pension. Or a different double lock: 0% and Earnings%?
What difficulties would be introduced in “contracted out” DB pensions that are “inflation-linked” in a complicated relationship with state retirement pension such that the DB pension receives a smaller rise than the state pension gets? Could the DB pension get a cut under either of my proposals?
Contracting out ended in 2016, but if you mean the misleadingly entitled “integrated” DB pensions, where the state pension is deducted from final benefits, these inconsistencies in annual
revaluations have gone on for a long time.
Some schemes still use RPI, which I read was only 3.4% pa compared to 3.1% for CPI in the latest monthly figures. Trustee funding assumptions historically tended to presume a 70-100 basis point margin between RPI and CPI.
Most DB schemes already have a 0% floor wired into rules and assumptions, which is why for funding purposes the inflation assumption allows a small margin about average inflation.
Not so sure about some index-linked annuities, where annual
payments could be reduced if inflation was negative year-on-year.
(Most) DB administrators are able to cope with such complexity.