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Politics

Pension triple lock: What is it and how does it affect me?

Ministers have made a fundamental change to how state pensions are calculated. Here’s what you need to know about the pension triple lock.

The government has come under fire for scrapping the pension triple lock, breaking a 2019 manifesto promise.

It’s a “betrayal” that threatens to plunge around 700,000 pensioners into poverty and puts the already uncertain retirement futures of younger generations at risk.

But what is the triple lock – now the double lock – and why is its removal attracting so much criticism? Here’s what you need to know.

What is the pension triple lock?

Under the so-called triple lock, the UK state pension is guaranteed to increase every year based on whichever of three things – inflation, wage growth or 2.5 per cent – is highest at that time.

It means people entitled to a state pension (currently set at 66 but expected to rise) are more likely to have enough income to cover the real cost of living.

State pension levels were linked to earnings until 1980. Over the next three decades, pension payments were dragged down by around 40 per cent in real terms relative to average wages. The policy was reintroduced by the Conservative-Liberal Democrat coalition in 2010.

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Why did the government end the pension triple lock?

Average wage growth is much higher than usual this year at around eight per cent. This is down to a couple of factors: mainly the effect of millions being taken off furlough and returning to work on full pay. Some employers in hard-hit sectors such as haulage have sharply increased wages to attract staff, driving up the country’s average wages.

Triple lock rules mean pensions should be increased by the same amount, if wage growth is the highest of the three factors – but the government says that’s unaffordable.

Calls to pre-emptively scrap the triple lock began in 2020 when wage growth for this year was incorrectly forecast to be as high as 18 per cent.

Despite pledging in the 2019 Conservative manifesto that it would maintain the triple lock for the duration of this parliament, Boris Johnson’s government successfully sought to change the rules in 2021 through the Social Security (Up-rating of Benefits) Bill.

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This means the earnings growth element of pension rules is being removed entirely, with payments increasing in line with either inflation or 2.5 per cent. It’s likely inflation will be the higher of the two figures, meaning it will dictate the pension increase for 2022/23. Pensioners are currently expecting a 3.1 per cent increase in payments in the next financial year.

Work and pensions secretary Thérèse Coffey said the new double lock is only temporary and will last for one year, but campaigners have expressed concern that the new policy could be made permanent and drag down pensions in years to come.

Coffey said the move will “also ensure that, as we are having to make difficult decisions elsewhere across public spending, including freezing public sector pay, pensioners are not unfairly benefitting from a statistical anomaly”.

MPs then voted 300 to 229 against a House of Lords amendment to the bill which would have retained the triple lock.

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Why are people angry about it?

The number of UK pensioners living in poverty was already on the rise before Covid-19 hit the UK. By the middle of 2021, more than two million older people were trapped below the breadline, a rise of around a third since 2014, Age UK said.

Ending the triple lock risks pushing another 700,000 into hardship at a time when living costs are soaring to eye-watering levels. People older than 85, renters and single women – all already more likely to struggle to afford basic essentials – could bear the brunt of the policy.

“The Conservatives will pay an eventual price at the polls,” said Dennis Reed, director of campaign group Silver Voices.

“The Conservative government has made a rod for its own back by whipping its MPs to vote against the interests of their older constituents. The combination of the cost-of-living crisis and this broken manifesto pledge will throw hundreds of thousands more pensioner households into poverty over the coming year.”

Coffey came under fire for suggesting the government had to choose between spending on the young and spending on older people. 

“I reject the presentation of this issue as a source of intergenerational tension or unfairness because we all have an interest in ensuring there is a decent state pension in future,” Jonathan Reynolds, Labour’s shadow work and pensions secretary, said.

It is “more of a triple let-down than a triple lock”, he added.

If the policy is made permanent as some fear, the impact would accumulate over time meaning UK state pensions would decrease by around £700 per year by 2050, according to Trades Union Congress research.

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Some opposition MPs and campaigners previously urged the government to amend the figure down from an eight per cent increase rather than scrapping the rule entirely, even just for a year.

But when ministers succeeded in passing the bill, former shadow chancellor John McDonnell said in the Commons: “Are we really having a row in this House about robbing pensioners of £2.75 a week? I just find it unbelievable that we can even contemplate that.”

The Lords amendment was tabled by Baroness Ros Altmann, a Conservative peer and former pensions minister.

“Three hundred MPs voted with the government to put more pensioners into poverty,” she said. “Don’t they understand how low our state pension is and how many elderly people rely on this for most or all their income?

“Telling people in their 90s who can’t afford heating it’s just for one year doesn’t help,” she added.

How does the UK state pension compare to other countries?

The UK’s state pension levels compared to average earnings is one of the lowest of all advanced economies in the world, according to the Organisation for Economic Co-Operation and Development.

It replaces just 29 per cent of average earnings for someone after retirement, compared to a 59 per cent average across all countries studied. The data does not take into account private pensions, which many older people also receive income from.

Countries including Austria, Luxembourg, Portugal and Turkey all pay their pensioners at least 90 per cent of the counties’ average earnings.

The government spends 4.7 per cent of GDP on state pensions in 2019, less than half what France and Finland spend.

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