What does the ‘triple lock’ mean for British pensions?
Retirees will reap the benefits of the triple lock next year. Their state pensions look set to rise by 2.6% in April next year. This equates to a boost of £220 next year. Weekly payments will increase from £164.35 to £168.60 for retirees on a full flat rate pension.
Inflation came in below expectations in September, at 2.4%, meaning the pensions increase is still more than the rise in the cost of living.
The triple lock on British pensions means that pensions increase every year by inflation, 2.5% or average earnings.
After stagnating for a decade since the credit crunch, wages have begun to rise again. Average earnings grew by 2.6% in July, and this figure is expected to be used for next year’s pension rise.
The Tory government appears committed to keeping the triple lock protection on pensions. By maintaining a minimum of 2.5% increase in yearly state pension, the Conservatives are likely to increase their voter loyalty among pensioners who are already their core constituency.
Before the last election, Theresa May considered replacing the “triple lock” with a less generous “double lock” commitment. This meant that pensions were not ensured to increase by a minimum of 2.5%, regardless of inflation or wage growth.
This has been widely cited as one of the reason for the Tory’s poor showing at the last election, where they were eventually forced into an agreement with the DUP to prop up their minority government.
However, the IMF recently called on the British government to scrap its triple lock commitment, stating that “important savings” could be achieved. In September they released their annual assessment of the British economy and claimed that discarding the commitment would free up precious money to fund the NHS.
The Pensions Policy Institute warned in March that 700,000 more pensioners would be living in poverty by 2050 if “triple lock” was to be abandoned.
Moving away from the “triple lock” commitment would be difficult for a UK government in power for several reasons.
Firstly, as described above, it risks the pensioner vote – an already large section of the British voter population and one that looks set only to increase as the population ages.
Secondly, it could achieve little political support because the massive savings it achieves are only obvious over the long run. It’s only in times of inflation or wage growth of less than 2.5% that savings would be visible. Manifesto writers will wonder what the point of targeting pensioners is, if it doesn’t help fund the flagship policies that draw in voters.
If you have any questions about your pensions or savings that fund your retirement, please get in touch. We’d be more than happy to answer them.