triple lock on state pension

What Is The Triple Lock on State Pensions?



Posted on: 1st July 2022

In regular times, the triple lock on state pension is ensuring rise each year in line with either 2.5%, average wage growth year-on-year in the May-July timeframe or inflation using the consumer prices index measure.

Typically, the uplift is confirmed in November before the new tax year, coming into effect from the 6th of April with no changes to pensioners’ income until the first Monday of the tax year. The triple lock applies to basic state pensions and the new state pension to keep up with living costs.

Now, the triple lock has been suspended for a year in exchange for a double lock, with the earnings part of the triple lock temporarily removed.

Why the Suspension?

Concerns over earnings growth being distorted by the pandemic fallout have been behind the decision to suspend the triple lock guarantee. The furlough scheme meant that millions of workers received a reduction in wages, but as restrictions started to lift, many businesses pulled staff back to work on full pay.

This resulted in an artificial boost in the average UK wage, rising by an annual 7.3% in the March-May period. The Office for National Statistics stated that between April and June, average total pay saw an increase of 8.8%. With the triple lock commitment, the state pension would have risen by more than 8% in the 2022/23 tax year, with the government requiring an extra £3bn to fund the increase.

This is why the government has suspended the triple lock guarantee for the tax year ahead, meaning the state pension will increase in line with the consumer price index – which was 3.1% in the year to September, higher than the 2.5%.

What the Triple Lock Means For You

The triple-lock does benefit those receiving the state pension, however – with inflation rising in 2022, those receiving their state pension stand to be losing money in real terms. The cost of living crisis is rising much faster than the increase in state pension benefits.

For the 2022/23 tax year, the full new state pension is £185.20 a week (£9,630.40 per year), only receivable if you have reached the state pension age after April 2016 with 35 full qualifying years on your national insurance record.

An increase of 3.1% next year will raise the basic state pension in 2022-23 to £141.80 a week (£7,373.60 per year), with those who reached state pension age before April 6, 2016, able to claim an additional state pension. There is no fixed amount and it is determined by factors such as earnings and national insurance contributions. The triple lock does not apply to any additional state pension.

How Can I Prepare Finances for Retirement?

Whilst the triple lock is a great benefit, the state pension alone can not fund a comfortable lifestyle within retirement.

Talking with independent financial advisers Manchester on pension advice Manchester, saving through an ISA or other safe avenues for retirement planning Manchester is now more essential than ever before. Contact the team at Haven IFA today to discuss your pension and retirement needs.