Triple lock concerns as reform may soon be 'inevitable' says expert

Labour may soon be forced to make a U-turn on its commitment to the triple lock pledge as the state pension bill for the Treasury spirals upwards.

State pensioners had a 4.1 percent boost to their payments from April thanks to the policy. The measure guarantees that state pension rates go up each April in line with the highest of three measures: the rise in average earnings, inflation or 2.5%.

The policy has delivered significant payment boosts in recent years, with a 8.5 percent raise in April last year and a record 10.1 percent uplift in 2023, thanks to soaring inflation.

But as more people sign on for the benefit and payments rates move up each year, the cost of the policy is a growing concern for the Government.

Will Stevens, head of wealth planning at wealth firm Killik & Co, said: "While the triple lock has provided valuable protection for pensioners experiencing higher living costs, as shown by this year’s 4.1% uplift, its long-term sustainability needs careful consideration.

"The Government has continued to claim it’s committed to supporting pensioners, but the cost of the triple lock is expected to be three times higher by the end of the decade, so we might be approaching a juncture where reform becomes inevitable."

OBR forecasts predict the state pension will cost £15.5billion annually by the 2029/2030 tax year, which is three times higher than was previously forecast.

Looking at what alternatives to the triple lock the Government may consider, Mr Stevens said Labour could try a double lock system, with the 2.5% element removed.

He said: "This would reduce the fiscal pressure and help reduce state pension spending while maintaining protections against inflation and earnings – but concerns have likewise been raised that this would only marginally improve long-term affordability for the Government."

Mr Stevens also said that it's essential to have private pensions in place, and to have a plan so that your state pension is just one component of your later life finances.

Lily Megson-Harvey, policy director at My Pension Expert, said that Labour need to "be cautious" in any changes it makes to the triple lock, as this could negatively impact retirees.

The expert said: "This Government needs to work closely with the industry on a sustainable solution that protects the most vulnerable in society.

"It's easy to fixate on the political football of the triple lock - we also need to consider wider policies that will support pensioners and savers.

"We want to see the Government focussing on long-term change rather than tinkering with policies and adding further layers of complexity within the pensions system."

Ms Megson-Harvey said pension reforms such as expanding auto-enrolment would be a "sensible step" to help people increase their private pension pots.

She also said more action is needed to make sure people understand their pensions and are monitoring their growth. The analyst explained: "Access to financial education and advice is an overlooked issue, with only one in ten consumers currently seeking pensions advice.

"We need to see a step change from Government in how it helps people understand and engage with their pension options, so their money works harder for them in retirement. This includes publishing the long-delayed pension dashboards as soon as possible."

The pensions dashboard is a tool that will show you all your pensions in one place, including your private pensions and your state pension, so you can see how much you have saved up for your retirement.