The triple lock was introduced by the coalition government in 2011, to help reduce pensioner poverty. It does this by increasing the state pension each year either by income, earnings or 2.5 percent, whichever is highest.
The mechanism has done a remarkable job but there is still a long way to go, as the state pension still falls well short of paying a decent level of income.
That hasn’t stopped MPs and other influential figures calling for the mechanism to be axed for being unsustainable.
Today, researchers at the Institute for Fiscal Studies (IFS) have called for the triple lock to be replaced with an Australian-style model, where the state pension only increases in line with average earnings.
Its suggestions have drawn a mixed response, with many struggling to understand how the new system will work.
Pressure is growing after two years when the state pension has risen strongly, adding to the total cost.
In April this year, it rose 10.1 percent in line with inflation, and it will rise by 8.5 percent next April, in line with earnings.
These are big increases, but critics neglect to mention that the earnings element triple lock was temporarily suspended in the 2022/23 tax year.
Pensioners were in line for a pay rise of 8.3 per cent. Instead, they got just 3.1 percent, in line with the consumer prices index (CPI). So pensioners haven’t had it all their own way.
There’s another issue. Even after 12 years of the triple lock, the state pension is nowhere near enough to live on, unless you have other sources of income.
Alice Guy, head of pensions and savings at Interactive Investor, said that although the state pension will rise by 8.5 percent in April, that isn’t the full story.
“It’s important to remember that it still falls far short of the amount needed for a basic retirement income.”
Pensioners need an income of £14,144 a year before tax as a bare “minimum” to get by, according to II calculations.
These are based on the Pension and Lifetime Savings Association’s (PLSA) Retirement Living Standards study, uprated for inflation.
Next April’s 8.5 percent will increase the state pension to just £11,501 a year, leaving a staggering £2,643 shortfall.
Also, these calculations assume state pensioners get the maximum new state pension, paid to those who retired after April 6, 2016.
In practice, many get much less. Older pensioners who retired on the basic state pension will only get a maximum of £8,812.80 next April.
Many will not even get that, as they do not have a full National Insurance contributions record. Those who qualify for the state earnings-related pension scheme (Serps) and state second pension (S2P) may get more, though.
“Scrapping the triple lock would lead to millions of pensioners facing a poor old age, as the state pension is currently not enough for even the most basic of retirements,” Guy says.
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A big problem facing today’s pensioners is that many worked during a time of the “pension haves and have nots”, Guy adds, when many workplaces did not offer a pension scheme. “As a result, 28 percent of over-55s have no pension provision apart from the state pension, our research shows.”
Those who are still working must understand that the state pension alone will not be enough for a comfortable retirement. “For that, you will need to supplement the state pension by saving into a workplace or private pension,” Guy adds.
The workplace auto-enrolment scheme will help, but should not be relied on entirely. Savers also need to build up money under their own steam, via personal pensions or their tax-free Isa allowance.
Many will struggle to invest more, thanks to the cost-of-living crisis and other issues such a student debt and property costs.
Downgrading the triple lock is unthinkable at a time when the state pension falls so far short of a basic retirement income. Yet it could happen.
