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What is the state pension triple lock and how does it work?

Retired couple protected by the pensions triple lock will
Retired couple protected by the pensions triple lock will

Millions of state pensioners have received the biggest pay rise on record this year,  thanks to the “triple lock” policy.

The full new state pension has surpassed £11,000 for the first time ever, with the change taking effect on 6 April 2024. The “basic” state pension, paid to those who reached the state pension age before 2016, has risen by more than £600 to £8,814 annually.

The triple lock policy, which was a key Conservative manifesto pledge in the last election, promises to increase the state pension every April by one of three measures. It’s in place in order to protect retirees’ income from price rises when they are no longer working.

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But this bumper pay rise comes at a massive cost to the Government, and questions have been raised about whether it might be changed, or scrapped altogether. At a time of mounting political pressure to get public finances under control, the state pension triple lock has become a key area of debate.

Here, Telegraph Money explains what the triple lock is, and how much pensioners will get from the state pension this year, covering the following:

What is the state pension?

The state pension is a regular government payment to support people throughout their retirement. It can only be claimed once you reach state pension age (currently 66 for men and women), and if you have enough qualifying years of National Insurance contributions.

What is the triple lock?

The triple lock policy was first introduced in by the Coalition Government in its 2010 Budget, and first came into force in 2011-12.

It promises to increase the state pension every April in line with either the previous September’s Consumer Prices Index measure of inflation (CPI), wage growth or 2.5pc – whichever is higher.

For 2024-25, the rise will be in-line with wage growth, at 8.5pc, as this was higher than both inflation and 2.5pc.

In 2023-24, pensioners saw a bumper 10.1pc pay rise as the triple lock followed CPI inflation, which was particularly high in September 2022.

What is the full state pension in 2024?

Retirees who receive the full new state pension will see their payments rise to £11,502.40 for the 2024-25 tax year, up from £10,600.20 in 2023-24. This is for those who reached state pension age after April 2016, with 35 qualifying years of National Insurance contributions.

The basic state pension, paid to those who reached the state pension age before April 2016, will rise to £8,814 – an increase of more than £600.

The table below shows how the triple lock has seen state pension payments increase since 2011-12.

How much will the full state pension be in 2025?

It is not yet confirmed how much the full state pension will be in 2025, as the relevant earnings and inflation data is not released until later in the year.

However, there are estimates as to what you could expect. According to the Office for Budget Responsibility (OBR), inflation is set to continue falling this year, and the triple lock is therefore likely to rise by earnings in 2025-26.

According to the OBR’s figures, this is set to be 3.7pc, which would see the new full state pension increase to £11,928 from next April. Once again, this is an estimated projection and could change.

What is the triple lock plus?

The Conservatives recently announced a “Triple Lock Plus” policy, which would give pensioners further protection on their income.

Given the full new state pension is only around £1,000 less than the personal allowance – and the personal allowance is set to be frozen until 2028 – there’s a chance those who receive the state pension as their only form of income could soon be forced to pay tax on it.

In a bid to prevent this situation, the policy would see state pensioners’ personal allowance rise in line with state pension rises.

However, this will only come into force if the Tories win the general election.

Will the triple lock end? 

While the triple lock rules are remaining for now, the policy is not written into law, so it can be changed in future.

During the pandemic the Government broke the earnings link of the triple lock, and instead chose to uplift pensions in line with inflation at 3.1pc. This was because the pandemic furlough scheme and redundancies led to a freak 8.3pc jump in wage growth.

But even before then, the Government has long been aware of the pressure that the policy would face. Helen Morrissey, of the broker Hargreaves Lansdown, said: “In 2017, a government-backed review found that while the state pension was doing a great job at boosting pensioner income, there would come a point when it becomes intergenerationally unfair.”

The state pension system is funded on a pay-as-you-go basis by taxes collected from today’s workers and businesses. Critics of the triple lock have suggested it is unfair that workers are footing the bill of such a large pay rise for retirees.

The state pension is one of the Government’s most expensive policies, costing £125 billion in 2023-2024, according to the Office for Budget Responsibility (OBR). It accounts for almost half of total spending on benefits.

Such a large bill has given rise to doubts even within the Conservative Party. Former Tory chancellor Philip Hammond has previously questioned the sustainability of the triple lock in an interview.

“Is it really right that we should always up the rate by the highest of wages, prices or by 2.5pc?” he asked.

“I think that is quite difficult to justify, and not all pensioners are poor. So I think there is a case for looking again at the way we treat pensioners, and possibly for distinguishing the poorest pensioners from the great body of pensioners, some of whom are really quite comfortably off.”

However, the Government has so far been reluctant to commit to any reform, especially as the policy helps curry favour with older voters.

Labour has also committed to maintaining the policy should it get into power.

Is the policy really unsustainable? 

Policy experts are scratching their heads. Pensioner benefit spending in 2023-24 represented 11.3pc cent of total public spending (up from 10.7pc in 2022-23), and 5.1pc of GDP, according to the OBR.

The state pension is one of the most expensive policies in Government. This makes it a big target for reform, especially as Britain’s official actuary has warned that the Government will soon spend more on the state pension and other benefits than it collects from National Insurance payments.

Contrary to popular belief, there is no National Insurance “fund”. Pensions and other benefits are funded by taxes collected from today’s workers. However, the actuary’s department has warned that the National Insurance “deficit” was forecast to rise to £9.7bn in the 2025-26 tax year and then to £9.4bn in 2026-27.

If it continues to deteriorate, the Treasury could be compelled to step in. A Treasury grant is a payment voted by Parliament. It is typically paid if the balance is projected to fall below one sixth of the forecast annual expenditure on benefits, or 16.5pc. The current balance stands at 51.9pc, but is forecast to more than halve to 24.1pc by the 2027-28 tax year.

Experts have warned uncertainty still lies ahead for future retirees. Plans are already in place to increase the state pension age to 68 between 2044 and 2046 for those born on or after April 1977.

Increasing the state pension age is a seemingly straightforward way for the Treasury to save tens of billions of pounds. It will push down the cost of the state pension, as well as generate more revenue in income tax from people who have no choice but to stay in the workforce for longer.

However, history suggests that increasing the state pension age deepens social inequality across the country. When the state pension increased from 65 to 66, one in seven 65-year-olds were pushed into income poverty as a result, the IFS estimated.

In the most deprived 20pc of areas in England, there was an 11 percentage point increase in the number of over-65s returning to work. That was more than double the wealthiest 20pc of areas, which recorded a rise of just four percentage points.

It could take both an increase in the state pension age and reform of the triple lock policy to balance the impact on both public spending and social welfare.

How can I qualify for the full new state pension? 

In order to qualify for a full state pension, you must have a 35-year record of National Insurance Contributions or received National Insurance credits for raising children or providing care. You need at least 10 years in total on your National Insurance record to receive any state pension.

Each individual’s state pension payments can look different depending on when they were born and how long they worked, as well as if they took any career breaks.

You can help your state pension grow by applying for National Insurance credits. These fill the gaps in your NI record and can apply to a range of periods such as being on jobseeker’s allowance, maternity allowance or even being on a government-approved training course.

Your full state pension will also look different depending on when you were born. Those who reached retirement age before 2016 will be entitled to the basic state pension, also known as the “old” state pension.

There is a gap between the old and the new state pension because retirees on the former were entitled to an additional “state earnings-related pension scheme” known as Serps.

Now read: How to check you’re getting the state pension you deserve