How long the triple lock?
11 August 2025
The future of triple lock increases for the State pension has been called into question by two well-respected groups of economists.
Triple lock increases to the main State pension were introduced from 2011/12, setting the yearly April increase at the greater of:
• The rise in prices to the previous September, now as measured by the Consumer Prices Index (CPI).
• The rise in average earnings (including bonuses) to the previous July.
• 2.5%.
The primary unspoken aim was to gradually raise the level of the State pension, relative to prices and earnings. A secondary goal was to avoid a repetition of the inflation-linked pension increase of just 75p a week in 1999, which attracted considerable political flack.
At the time of the triple lock’s introduction, the Office for Budget Responsibility (OBR) projected that by 2029/30 it would be costing £5.2 billion a year more than if increases had been solely linked to earnings growth. Unfortunately, that proved to be one of the OBR’s more inaccurate projections.
In a daunting document entitled ‘Fiscal Risks and Sustainability Report’, the OBR now projects that the extra cost will be £15.5 billion in 2029/30, almost exactly three times its original figure. The OBR says that its original projection assumed a few years in which the triple lock would outpace earnings. However, the reality was that since the start of the triple lock, the UK has seen more volatile inflation and lower earnings growth than the two decades prior to the triple lock’s introduction (which had guided the OBR assumption). Looking far forward to 2073/74, the uncertainty surrounding what payments will be triggered by the triple lock encouraged the OBR to include three potential cost estimates for pension uprating, with £48 billion in today’s money being the OBR's most likely outcome.
Meanwhile, at the Institute for Fiscal Studies (IFS), economists have produced a pension report that also highlights the high cost of the triple lock. The IFS says “a reasonable estimate … for additional spending on the state pension in 2050 due to the triple lock, above and beyond earnings indexation, would be between £5 billion and £40 billion a year in today’s terms.”
After the problems caused to the government by means-testing the Winter Fuel Payment, the triple lock should be safe for the rest of this Parliament. Thereafter, it would be unwise to assume its prolonged survival in your retirement planning.
Examine the rules around care funding, the support available and whether you might have to sell your house if you should need to fund care costs.
The pros and cons of withdrawing a lump-sum from your pension
At the end of 2022, inflation in the UK, as measured by the Consumer Prices Index (CPI), was 9.2%, having reached a high of 11.1% in the previous October. In 2024, inflation ended the year at 2.5%, with the Bank of England’s target range of around 2%. The US has seen a similar pattern, although its peak was 9.1% in June 2022. Despite annual CPI inflation falling to 2% by the time of the 2024 elections, the cost of living was a major factor in why the incumbent party lost power in both countries. Those election results were a reminder that the economist’s view and the public’s view of inflation differ greatly. The economist has a strictly mathematical 12-month view, whereas public perceptions are longer term and often more focused on specific items. One way to understand this is to examine some of the detailed 2024 UK inflation annual figures and compare them with the three-year price increases (December 2021–December 2024). Overall In 2024, CPI inflation was, as we said, 2.6%. However, over the three years, prices had risen in total by 17.4%, equivalent to 5.5% a year. Food and non-alcoholic beverages This is a high-profile category, which has seen a whiplash pattern of inflation, soaring to 16.8% in 2022 and then plummeting to 2.0% in 2024. Over the three years, price increases totaled 28.7%, equivalent to 8.8% a year. Some items in this category experienced much sharper rises – oils and fats jumped nearly 56%. Restaurants and Hotels This is the largest category in the CPI, accounting for about one seventh of the total ‘shopping basket’. Over three years it was up 23.2%, while in 2024 it added 3.4%, making it the largest contributing category to 2024 inflation. Transport If you guess this, you will almost certainly be wrong. Over the three years, transport costs rose in total by just 5.4% and in 2024 they fell remarkably to 0.6%. Most people remember the pump price jumps of the Ukraine war, but forget their unwinding, helped by freezes on fuel duty. Whichever way you think about inflation, make sure your financial planning takes it into consideration.
