The State Pension will increase by around £5.50 a week in April 2022 in line with inflation, which hit 3.1% in September.
This follows the suspension of the ‘triple lock’ guarantee, with people reaching retirement age told their State Pension income would rise by the highest of inflation, or 2.5%. Earnings growth was not factored in for the next rise, as this would have seen a record increase of 8.3%, with wages soaring disproportionately in the wake of the pandemic.
On Wednesday 20 October, official data from the Office for National Statistics (ONS) confirmed that the consumer prices index measure of inflation reached 3.1% in the 12 months to September 2021.
The State Pension often forms the foundation of retirement income, and the government’s decision to temporarily scrap the triple lock could have implications for the future of the triple lock, and retirement income.
Here, we explain what you need to know about how the triple lock works, what it means for your pension income, and why it’s important to be prepared for any changes that could lie ahead.
- How does the triple lock usually work?
- How does the triple lock benefit me?
- How has the State Pension risen over the years?
- How much will the State Pension rise by next year?
- Will the triple lock remain in place?
- What would happen to the State Pension if the triple lock is scrapped?
- How can I increase my State Pension?
- What else can I do to boost my retirement income?
- Getting advice on your pension
How does the triple lock usually work?
With the exception of next year, the triple lock works in one of three ways, guaranteeing that the basic and new State Pension will rise by the greatest of the following three figures:
- The rate of inflation, or the rate at which the cost of goods and services increases by, as measured by the Consumer Prices Index (CPI)
- Average earnings growth, as measured by the Office for National Statistics (ONS).
For example, if average earnings rose by 4%, the State Pension would likely also increase by this amount, unless inflation soared. However, even if both average earnings and inflation (CPI) remain lower, and don’t rise by more than 2.5%, then the State Pension will still increase by 2.5%. This way, the State Pension rise could beat inflation, which has happened often since the introduction of the triple lock.
The triple lock is based on the inflation and average earnings figure taken in September, with any rise being implemented the following April. For example, the State Pension rose by 2.5% in April 2021, given a fall in earnings and minimal inflation.
Find out more about how the State Pension works in our article How the State Pension works.
How does the triple lock benefit me?
The triple lock was designed to ensure that the amount of State Pension you receive will at least keep pace with the rate of inflation, or the rising cost of living.
As a three-way guarantee, the triple lock is considered a particularly effective safeguard when it comes to State Pension payments. It gives peace of mind that the spending power of your State Pension will not fall during your retirement and, in fact, your pension may actually beat inflation given the three guarantees.
After all, retirement can last for several decades, or even longer, and over this time period the cost of living can rise dramatically. There have been times, such as in the 1970s, when inflation skyrocketed and placed extreme pressure on household finances, and particularly pension incomes.
How has the State Pension risen over the years?
Since the introduction of the triple lock in 2011, the largest annual rise in the State pension as a result of the guarantee was 5.2% in 2012/13, which was due to inflation reaching this level.
However, it’s not usually as great as this, as you can see from the table below, which details all the rises over the years, and which figure they were based on that particular year.
State Pension rises since 2011
|Tax year||State Pension rise||Rise based on|
Source: House of Commons research library
How much will the State Pension rise by next year?
The State Pension will next year rise by 3.1%, and not by earnings growth.
If it hadn’t been temporarily amended next year and rose by earnings growth at 8.3%, the cost of this uplift would have amounted to an eye-watering £3 billion
With both taxpayers and the government’s coffers already under pressure, it would have been difficult to justify such a sharp increase.
Ian Browne, pensions expert at Quilter, said: “The writing’s been on the wall for the 2022 state pension triple lock for some time now. Rapid wage growth resulting from the end of the furlough scheme could have potentially increased state pensions by over 8% next year. Defending such an increase in state pension incomes would have been a tricky message for the government to get across after they’ve just hiked national insurance rates for workers and for employers.”
Will the triple lock remain in place?
That’s the million dollar question. The government pledged in 2019 to continue increasing the State Pension in line with the triple lock guarantee during the current parliament, but has now broken this pledge by replacing it with a double lock next year. There have been calls to scrap the triple lock for good, going forwards, with fears it’s too expensive to keep in place for the taxpayer, but only time will tell if this happens.
What would happen to the State Pension if the triple lock is scrapped?
If the government chose to pemanently ditch the triple lock and instead, introduce a double lock, this wouldn’t have a major impact on current retirees. If you’re already retired and claiming your State Pension, any rise would still amount to at least inflation. The difference would be, however, that any increase wouldn’t amount to more than inflation, as it could under the triple lock guarantee.
However if, alternatively, a single lock was introduced that is, say, linked to just earnings or CPI, but not the greater of the two, then there is a risk that your State Pension’s spending power would fall over the years.
If the concept of any kind of lock was entirely scrapped, and the government chose to decide on any increases to the State Pension in the Budget, this could see pensioners hard hit. Try not to worry about this, as while major changes cannot be ruled out, it’s unlikely there would be such a dramatic sudden shift in policy.
Generally, it’s the generations that have yet to reach retirement and are one or two decades away that are most likely to be impacted by a major change to triple lock. At present, State Pension age is 66, but it will rise to 67 by 2028, and is expected to increase to 68 between 2037 and 2039. It is impossible to predict with any certainty what further changes lie ahead to the State Pension for those yet to reach retirement.
How can I increase my State Pension?
There are ways you can boost the amount you receive from the State Pension, if you’ve yet to receive it. For example, you can defer taking your State Pension to increase the amount you get. Deferring for 12 months, for example, will increase the amount you receive by 5.8% a year. However, this should be a carefully thought out decision, as it’s not necessarily clear cut and relies upon a variety of factors to be ultimately beneficial.
Find out more about how this works and the potential benefits and pitfalls in our article Deferring State Pension – How much can I get and is it worth it?
Remember that the amount of State Pension you receive is based on your National Insurance Contribution (NIC) record over your lifetime. You need to have 35 ‘qualifying years’ of NICs to receive a full state pension, and 10 years to receive anything at all. These can be made up of NICs paid while you were employed, Class 2 NICs if you’re self-employed, national insurance credits if you are caring for a child aged under 12, or in receipt of Carer’s allowance. You can also pay voluntary NICs to make up for missing years in your record and increase the amount of State Pension you receive.
Find out more about how to check your record, and build up your State Pension entitlement in our article How the State Pension works.
What else can I do to boost my retirement income?
Ideally, none of us should rely on the State Pension alone to fund our retirement, as it’s unlikely to provide enough for a comfortable standard of living. If you can afford to, it’s a good idea to build up private savings through a workplace pension scheme, or your own personal pension, to supplement your State Pension income. Find out more in our article Saving into a pension for the first time.
It’s also worth considering if you might have lost track of pensions over the years, particularly if you’ve moved jobs a number of times. Find out more about how to track these down in our article Tracing lost pensions.
Ultimately, when you reach retirement, you have plenty of options on how to produce an income from your workplace and personal pension savings. Find out more in our article Your pension options at retirement.
Getting advice on your pension
The Government’s Pension Wise service, run by the Pensions Advisory Service and Citizens Advice, provides people aged 50 and above with free guidance on their pension choices at retirement. You can give them a call on 0800 138 3944 to book a free appointment, or you can book one via their website.
It’s always worth taking advantage of a free appointment with Pension Wise, however if you want advice that’s tailored to you specifically, you’ll also need to speak to a financial advisor, as Pension Wise can only provide general guidance and not individual recommendations. In this case, our guide on How to find the right financial advisor for you might be helpful.
If you are looking to speak to a qualified financial advisor, you can find one on VouchedFor* or Unbiased.co.uk*, or for more information, check out our guide on How to find the right financial advisor for you.
If you’re considering getting professional financial advice, VouchedFor is offering Rest Less members a free pension check with a local advisor. There’s no obligation but once you’ve had your review, the advisor will discuss the potential for an ongoing paid relationship if you think it might be useful to you.
Are you worried about your State Pension, and the impact that changes to the pension triple lock could have on you? We’d be interested to hear from you. You can join the money conversation on the Rest Less community or leave a comment below.