UK: State Pension Triple Lock Under Threat As Policy Faces ‘Heightened Challenges’

The triple lock guarantees the state pension increases each year in line with the highest of 2.5 percent, inflation or the increase in average earnings.

Pensioners had a major boost this April when payments increased by a record 10.1 percent, after high levels of inflation throughout last year.

The September figure for the CPI measure of inflation is used when calculating the triple lock, and this is where the 10.1 percent figure came from.

Many analysts have warned the triple lock may become unsustainable as high levels of inflation could mean sizeable payment increases in future years.

Another concern is as more people retire with longer life expectancies, the cost of state pension payments will continue to rise.

James Carter, head of Pension Products and Policy at Fidelity International, told the triple lock will inevitably be affected by short-term pressure as well as more long-term issues.

He said: “The triple lock was suspended for one year only in 2022 as earnings bounced back following the wind-down of the COVID-19 furlough scheme.

“Now the triple lock faces heightened challenges in the form of affordability and generational equity, following the circa-10 percent inflation driven increase in April this year and the ongoing inflationary environment.

“This is as much a political issue as it is a fiscal or pensions issue. As we move towards a general election next year the state pension will likely feature in manifesto commitments. However, what is needed is a resilient future strategy, so consumers have certainty.”

He said policy makers need to think about an appropriate “stable basis” for how the state pension will work in future.

Mr Carter commented: “To achieve this, one cannot consider the role and level of the state pension in isolation.

“A broader review of the UK pension system is required, taking into account the state pension alongside the development of the automatic enrolment regime and provision for self-employed and gig workers.

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“Considerations must be made towards both eligibility for automatic enrolment and how the coverage and quantum of contributions might increase in the future.”

The full basic state pension is currently £156.20 a week while the full new state pension pays £203.85 a week.

Auto enrolment is a law that requires employers to provide a workplace pension for employees who earn above a certain amount.

Under current rules, a minimum of five percent of the worker’s salary has to go towards the pension pot, while this is matched by three percent from the employer.

‌Some pension schemes provide the option for the employer to pay in more than the minimum contribution so the worker may be able to contribute less, as long as the eight percent minimum total is paid in.

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A person has to be at least 22 and under state pension age and earning at least £10,000 a year to be eligible, although the scheme is being extended to all workers aged 18 and over later this year.

An individual can check how much state pension they are on track to receive using the state pension forecast tool on the Government website.

The state pension age is currently 66 for both men and women although this is increasing gradually to 67 and then to 68 over the coming years.

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