The state pension triple lock has been criticized as a "terribly designed policy" that has become far more expensive than anticipated. The UK government is projected to spend £146.1 billion on state pension payments in 2025-2026, a figure that continues to rise due to the triple lock guarantee. This policy ensures that the state pension increases each April by the highest of inflation, earnings growth, or 2.5%.
Impact of the Triple Lock
According to the Office for Budget Responsibility (OBR), the triple lock has added an extra £12 billion per year to state pension spending by 2025-2026, compared to if it had been linked solely to average earnings since 2011. Officials warn that action is needed. The Resolution Foundation, a left-leaning think tank, estimates that scrapping the policy would save £650 million annually by the end of the current parliament.
Ruth Curtice, chief executive of the Resolution Foundation, called the triple lock a "terribly designed policy that has proven to be far more expensive than originally planned," warning it risks causing "further economic harm."
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Recent Pension Increases
In April, the full new state pension rose to £12,547.60 per year, up from £11,973, an annual increase of £574.60. This brings pensioners closer to paying tax on their pension, as the annual tax-free personal allowance is £12,570.
Rachel Vahey, head of public policy at AJ Bell, warned that this trajectory presents a "dilemma" for the Treasury. The chancellor may have to choose between angering pensioners by scrapping the triple lock or increasing the personal allowance, which would add financial strain.
"While pensioners will be in a mood to celebrate, this sizeable uplift to the state pension is likely to engorge projections of future government spending and presents a dilemma for the Treasury," she said. "Removing the freeze on the personal allowance would come at significant cost to the Treasury at a time when the chancellor’s fiscal headroom is already strained at best, while an overhaul of the triple lock would come with huge political risk before the next general election."
Future Generations at Risk
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, warned that the huge bill could postpone retirement for future generations. "Recent data shows the number of people living until their nineties – and even longer – has soared, and the government needs to consider how to balance the costs of state pension with the burgeoning pensioner population," she said.
She noted that further increases to the state pension age could be considered after the review led by Dr. Suzy Morrissey is finalized. Regarding the triple lock, she added, "The government had pledged to keep it in place for the remainder of this Parliament, but longer term we could see changes on the horizon."
