The triple lock is a process that ensures the UK state pension rises with inflation each year. It was brought in by the coalition government in 2011 to bring greater economic security to the retired. Before the change, the pension rose in line with the retail prices index (RPI) measure of inflation, which most years had fallen below annual earnings increases or 2.5%.

Slow growth in recent years has resulted in a mismatch between pension value and the wages of the average worker. Between April 2010 and April 2016, the state pension value increased by 22.2%, whereas earnings grew only 7.6% and prices 12.3%. As a result, pensioners’ incomes have risen at nearly double the rate of workers.

Every year a debate reemerges about whether to change the triple lock because the current arrangement does not look financially sustainable. It is a tricky subject for the Conservatives whose supporter base skews older than Labour. By changing their pension policy they risk the ire of voters, but they also strive to be economically efficient. Any alteration would go against their manifesto where they pledged to maintain the current formula.

It was reported last week that treasury officials were discussing a one-off pause of the triple lock, with the goal of saving £1bn. Facing an 8.5% rise, Jeremy Hunt and his team are weighing up whether to adopt an earnings link that tracks the underlying level of pay growth. This could bring in a lower (though admittedly still high) rate of increase of 7.8% from April 2024. The government has suspended the triple lock once, in the 2021 Autumn Budget, in response to the pandemic’s creation of unusual base effect distortions on annual earnings data feeding through to higher state pensions.

William Hague has weighed in, arguing that it is time to abandon the triple lock. The cost is “unsustainable” he said and “not something that can go on forever” without sacrifices elsewhere, such as reductions in benefit for working age people, and/or large tax rises. He compared the situation to a “runaway train”, driven by Rishi Sunak and Keir Starmer, neither of whom “can afford to commit electoral suicide by being alone in suggestion that some change is needed”.

Projections from The Office for Budget Responsibility point to enormous costs in future decades if the triple lock is not modified. By 2027-28, state pension spending is expected to be £23 billion in today’s terms (0.8% of GDP) higher than at the start of the decade.

Sources:
Treasury officials mull one off break from pensions triple lock; The Guardian.
Fiscal risks and sustainability report, July 2023; Office for Budget Responsibility.