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AJ Bell pensions expert Tom Selby examines the system and how it might change
Thursday 22 Jul 2021 Author: Tom Selby

I reached state pension age three years ago but only part of my payment seems to benefit from the triple-lock. Is this right? And do you think the triple-lock will stay intact given the economic situation?


Tom Selby, AJ Bell Senior Analyst says:

For the past decade or so the state pension has risen in line with the ‘triple-lock’, meaning it increases by the highest of average earnings, inflation or 2.5%.

For 2021/22, for example, with both earnings and inflation low – in part because of the pandemic and subsequent national lockdown – the figure used for the triple-lock was 2.5%.

The triple-lock only applies to the flat-rate state pension and the basic state pension, which in 2021/22 stand at £179.60 and £137.60 per week, respectively.

Prior to the introduction of the flat-rate state pension in April 2016, people often built up various other entitlements alongside their basic state pension. These included the additional state pension and graduated retirement benefits.

These state pension add-ons usually only increase in line with CPI (Consumer Prices Index) inflation rather than the triple-lock. Historically, the Government has used the CPI figure for September of the previous year, meaning for 2021/22 the increase was just 0.5%.

You can read more about how the state pension works here.

While retaining the policy could add billions of pounds to public spending at a time of severe fiscal pressure for the country, unpicking it would break a manifesto commitment.

Lockdown has created an extreme set of circumstances which saw salaries suppressed in 2020, with millions of people furloughed on 80% of their usual wages.

In the three months to May average earnings rose by an eye catching 6.6% and many expect the figure for the three months to July – historically used as the reference point for the triple-lock – to be even higher.

If average earnings rise by 8% in the three months to July, which looks entirely plausible based on the current data, this could increase the value of the flat-rate state pension by £746.20 to over £10,000 a year, or £193.95 per week (see table below).

Sunak and prime minister Boris Johnson have both hinted at possible changes to the triple-lock, with Johnson reportedly saying there needs to be ‘fairness for pensioners and taxpayers’.

Options the Government could consider include scrapping the earnings element of the triple-lock – perhaps temporarily – or smoothing the earnings figure over a longer period of time.

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