What is the Triple Lock Pension?


The triple lock is a security measure currently applied to the state pension, designed to guarantee that your retirement income doesn’t lag behind inflation.

The triple lock guarantees that your pension will increase each year according to the higher of earnings growth, price inflation or 2.5%.

What is the triple lock?

The triple lock pension is a security that safeguards your retirement income against inflation. It guarantees that each year, whatever of three factors – inflation, wages growth or 2.5 per cent – is highest at the time, your state pension will increase accordingly.

But the government has come under fire for scrapping it, breaching a manifesto promise and potentially pushing 700,000 people into poverty. Activists fear this move could spark a vote backlash among voters – especially older generations who are already struggling to make ends meet.

According to Therese Coffey, the triple lock would be suspended in 2022-23 due to wage growth being disrupted during the coronavirus pandemic (Covid-19). However, now that government has confirmed it will remain protected for another year.

How does it work?

The triple lock is a government commitment to increase your state pension each year in line with inflation, average earnings or 2.5% – whichever of these three is higher. This ensures that your income doesn’t get cut back by rising living expenses.

However, there may be times when the triple lock must be withdrawn or modified. This could occur if its cost becomes too much for taxpayers to bear or there is a lack of political will to keep it active.

Typically, the triple lock means your state pension will increase in accordance with September’s inflation figure or the higher of average earnings growth or 2.5%.

Your income should remain constant with the rising cost of living, however there may be times when it can be altered or withheld. In retirement, this could mean that your state pension does not cover enough to cover all your costs.

Many pensioners will be delighted by the news of a reinstated triple lock for next year, especially as rising inflation has left many struggling to keep up with their bills this year.

What is the impact of the triple lock on my pension?

The triple lock ensures your pension will increase annually in line with either inflation, average earnings growth or 2.5%. As inflation is an important factor when calculating how much a pension may be worth over time, making sure your income continues to increase accordingly is essential.

The triple lock guarantee was first implemented by the coalition government in 2011 and is included in Conservative Party’s manifesto for this Parliament.

However, there have been concerns that the triple lock has cost the government far more than anticipated. In 2021, for instance, state pension rises would have only been linked to average earnings growth had there been no triple lock implemented.

How can I make sure my retirement income keeps up with inflation?

One of the major worries for retirees is inflation, as it can significantly diminish their retirement savings and affect quality of life as well as ability to afford essentials.

Fortunately, there are several steps you can take to protect your retirement savings from inflation in retirement. The first is diversifying your portfolio and investing in investments that are expected to appreciate in value as prices rise.

Another way to safeguard your retirement income from inflation is by cutting expenses and paying off debt. Clearing away credit card debt, student loans and mortgage allows cash for living expenses.

Although it may be tempting to take on more short-term risk with your savings, consider how this risk fits with the needs of retirement. Furthermore, choose investments that provide a good rate of return while minimizing potential downside risks.

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