Here’s what you need to know about the pension triple lock - and if it could be scrapped
Under the triple lock system, state pension payments rise each year, but this could now be under threat as the government looks at ways to reduce debts incurred by the coronavirus pandemic.
But how does the pension triple lock system work, and what would replace it if it was scrapped?
Here’s what you need to know.
What is the triple lock?
The state pension is currently increased by the triple lock. This guarantees that the basic state pension will rise by a minimum of either 2.5 per cent, the rate of inflation, or average earnings growth - whichever is largest.
It was introduced in 2011 by the coalition government. Before 2011, the state pension rose in line with the retail prices index (RPI) measure of inflation.
The idea behind it is to protect pensioners from insignificant increases in their pension.
The basic and new state pension rise each year under the triple lock mechanism.
This year, the State Pension rate increased by 3.9 percent, in accordance with wage growth.
Why is the triple lock under threat?
The document predicts that Britain will have a budget deficit of £337billion. This is due to the amount of support that has been offered to the government throughout the coronavirus outbreak.
It was stated in the document that it would be difficult to fill the gap in public spending without breaking the triple lock.
The document suggested that in order to raise the revenue needed, the government would either have to increase pension tax relief or increase income tax, VAT and national insurance.
Alongside this, other suggestions included an NHS and social care tax surcharge, public sector pay freezes, or a new carbon/green tax.
Technical director at Canada Life, Andrew Tully, explains how any changes to the triple lock system need to be thought out, with long-term plans put in place for the future.
Mr Tully said: “Recent above inflation increases to state pensions have been a very welcome boost for the many retirees who are looking to balance household budgets.
“However there has been much debate over recent years about the long-term sustainability of the triple-lock.”
He added: “Any changes to the triple lock need to be well thought out and preferably have cross-party support so we have a sustainable long-term policy and people are clear how the state pension remains the bedrock of their retirement income.”
What could replace the triple lock?
In April of this year, a think tank called on the government to replace the triple lock with something more affordable, in order to help reduce the deficit that has built up due to the coronavirus pandemic.
Two of the potential replacements for the triple lock, according to Mr Tully, include:
A double-lock - which would tie increases to earnings of inflation (whichever is higher)Increasing state pensions by a single measure such as earnings or inflation