State Pension is still the bedrock of many pensioners’ retirement income
The earnings benchmark of the State Pension triple lock has been temporarily set aside for this year. The Department for Work and Pensions (DWP) confirmed on 7 September 2021 that the State Pension triple lock rule has not been applied for the current 2022/23 financial year over concerns of the potential costs involved.
It comes after the Office for Budget Responsibility (OBR) said in July last year that pensioners could see their payments rise by as much as 8% due to the guarantee. The triple lock guarantees that pensions grow in line with whichever is highest out of earnings, inflation or 2.5%.
What is the triple lock for pensions?
The triple lock has been a core commitment of every government budget since 2010, when it was announced by the Coalition Government made up of the Conservatives and the Liberal Democrats. It was a response to the fact that the real value of the State Pension had fallen, and it looked to guarantee that this vital state benefit would continue to rise every year.
The ‘triple lock’ refers to the idea that the State Pension rises in line with the highest of these three measures every year:
A flat 2.5% rise
Average earnings growth (measured from May to July each year)
Inflation (measured in the year from September every year)
This annual rise is applied to the basic State Pension as well as the new State Pension (for people retiring after 2016). The government uses it to make sure that people’s retirement benefits keep pace with the rising cost of living.
Bedrock of many pensioners’ retirement income
Understandably pensioners are disappointed that the triple lock has been removed for this year, as the State Pension is still the bedrock of many pensioners’ retirement income. Women and those who are self-employed are among those who will be particularly affected by the temporary scrapping of the triple lock, as they are more likely to rely on the State Pension in retirement.
However, it is encouraging that the government hasn’t abandoned its longer-term commitment. The 2.5% minimum rate has been used on a number of occasions, and is having the effect of slowly increasing what people receive in real terms. The long-term trajectory of the State Pension will also be more important to younger people, more than a one-off hike in line with earnings this year.