Since the pension triple lock was first introduced in 2010, the economic circumstances have always meant that it’s a manifesto commitment that any party is willing to stand behind, after all, who wants to be the political party that alienates the ‘grey pound’?
But in 2023, off the back of double-digit price inflation and significant pay increases, the triple lock is looking like an expensive policy for the government to apply. Add to that the fact that its not just a one off ‘bonus’. Any increase paid this year is an ongoing increase to the standard pension and will therefore form the basis for compound increases in future years – something that will cost billions. Cue some mumbling from MPs when questioned on the matter and a distinct lack of commitment from any of the main political parties as to whether the triple lock will feature in any of their manifesto’s come the next election, which is of course just around the corner.
What is the triple lock?
The triple lock is a standard calculus that determines the annual increase in the standard pension rate. The formula looks at three key indices for the period from May to July and uses these to decide the pension increase for the next tax year, beginning the following April.
The rule is that pensions will rise by 2.5% or in line with the increase in prices or average pay rates during that period. But the lock is the key aspect as it says the rate must be the highest of the three, effectively placing 2.5% as the base level for a rise. In 2023, the highest rate is salaries at 8.5%, far beyond any previous increase – causing consternation at the Treasury as they continue to try and balance the books whilst facing wave after wave of unforeseen hurdles.
The unofficial word is that an increase of 8.5% is unsustainable, not just now but into the future, because of the compound nature of the annual increase. Ministers are now scrabbling around to come up with a solution that is at the very least in the spirit of the lock, if not the letter. To achieve this, they’re analysing what made up the spike in salaries and have put it down to a combination of bonuses and pay settlements in the public sector – one-off payments that have helped employees deal with the cost of living but do not form part of contracted salaries. But even with these removed, that headline rate only drops to 7.8%. Whilst more palatable, its still far beyond what the government has had to cough up in the last 12 years of the triple lock – and at the worst possible time too.
The end of the triple lock?
So, does this hiatus spell the end of the triple lock? If the government break it by massaging the figures, as it looks like they will, does the lock even still exist? The question of pensions has long been a troublesome one in the party manifestos. With people living longer, the bill increases constantly and despite moving the retirement age, it’s always going to be a significant undertaking for any government.
With an election expected in the next 18 months, it’s a nettle all the main parties will have to grasp. What now follows will be a game of who blinks first. Nobody is likely to come out and say they will do away with the triple lock. But what we might see are a host of new pension manifesto announcements that will offer a similar level of promise but perhaps turned on their head to become a maximum guaranteed amount rather than a minimum. All the time the indices bumbled along between 1% and 5%, everyone was happy to commit to keeping the lock, but this is likely to be the first general election since 2010 whereby that commitment does not appear in any manifesto. In the highly unlikely event that anyone does break cover and say they will keep it, be prepared for a series or associated announcements around moving retirement ages and increasing contributions to pay for it.