What is the triple lock ?

It’s in the news all the time, but what exactly is the triple lock ?

Quite simply it is the amount that the UK state pension will increase each year on the 6th April at the start of the new tax year.

Whereby the amount of state pension that you receive will increase by any of the following, whichever is the highest !

• The rate of inflation
• avergage uk earnings
• or 2.5%

So how exactly does the increase work ?

As stated the state pension will increase on the 6th April each year, based upon a system called the triple lock. It was introduced in 2012 to improve the payments made to those over state pension age.

• It will increase by rate of inflation, based on September’s consumer price index (CPI)
• how much average earnings have grown between the period of May to July
• or 2.5%

A simple example for the most recent past increase effective April 2024.

At the time of doing calculations, CPI was at 6.7%, but average wage increase was at 8.5%. So based on the higher amount the state pension was increased in April 2024 by 8.5%. So the amount payable went from £ 203.85 per week to £ 221.20 per week, oR £ 11,540 per annum.

What exactly is the state pension ?

It is the amount payable by the government every 4 weeks based on National Insurance contributions during your period of employment. To receive any state pension amount you need a minimum of 10 years qualifying contributions. To reach the maximum sum you need to contribute 35 years of full qualifying contributions. Normally NI contributions will cease to be paid once you reach state pension age.

The current state pension age is 66 for both men and women, has been equalised in recent years. But this will be increasing gradually over the next few years to age 67 for those born after April 1960. It will again be increased to age 68 for those born after after 1977. (although this is subject to pension review, normally every 5 years)

To check your state pensionable age, and when you will receive it, click the following link: https://www.google.com/url?sa=t&source=web&rct=j&opi=89978449&url=https://www.gov.uk/state-pension-age&ved=2ahUKEwi_w8TPwbqIAxXaWUEAHZOwBVwQFnoECBgQAQ&usg=AOvVaw3Q9NSAprX27iw-i5OqYYif

Are there any exceptions to receiving the triple lock ?

• Any additional state pension amount payable, applicable if you reached state pension age before April 2016
• Or any extra amount if you decide to delay accessing your state pension – known as deferring.

Most people are not aware that they have to claim state pension, at state pension age. The DWP will write to you over your entitlement and when payments are payable normally every 4 weeks.

However though, if you decide to defer it will be increased by 1% for every 5 weeks of deferral or 5.8% for 52 weeks or 1 year.

How does the triple lock affect pensioners moving forwards ?

The bad news is, if costs rise but your income stays the same amount, you will be financially worse off. As inflation increases the costs of goods rise and become more expensive and unaffordable.

The triple lock was introduced to hopefully solve this scenario, so it would give a guarantee to pensioners that their income from the government would increase to meet such cost increases.

How much is it expected to increase for next year being April 2025

Based upon recent figure, we have inflation at 2.2%, average wage growth at 4%. So based on those assumptions the amount will increase by 4% being the largest increase.

So from April 2025 the weekly sum could go from £ 221.20 per week to £ 230.05, a increase of £ 460 per year to £ 11,962 per annum

Or those on old state pension from £ 169.50 per week to £ 176.30 per week or £ 9,167 per annum so a smaller increase of £ 353.60 per annum.

Does it affect all people receiving the state pension ?

The current triple lock will apply to all people receiving the new state pension or the old state pension. Although the old state pension payable is currently £ 169.50 per week or £ 8,814 per annum. So the increase they will receive will be a lower sum.

With regard to claiming the annual increase, you don’t have to do anything or make any extra claim to receive additional sum. It will be paid automatically by DWP and amended accordingly, with regard to all future payments that are payable.

What happens if I am living overseas ?

It depends upon which country you reside in. Under current rules the UK state pension can be paid into any country you live in. But not all countries have an agreement in place to give pensioners the annual increase each April.

See link of Gov.uk for greater detail and specific information: How your pension is affected

Your State Pension will only increase each year if you live in:

• the European Economic Area (EEA)
• Gibraltar
• Switzerland
• countries that have a social security agreement with the UK (but you cannot get increases in Canada or New Zealand)

You will not get yearly increases if you live outside these countries.

Your pension will go up to the current rate if you return to live in the UK.

Is my state pension taxable ?

At present the state pension is not taxable as it it personal the personal tax free allowance of £ 12,570 (as per 2024/2025).

Once receiving it would be added to any other earnings, pension or sources of income receiving during that tax year and they would be taxed at source by respective pension providers or employers though PAYE.

So simple example:

If you receive the state pension of £ 11,541 and annual salary of £ 20,000, your total earnings would be £ 31,541. So you would be classed as basic rate tax-payer and the earnings from £ 12,570 to £ 31,541 would be taxed at source.

The current tax bandings have been frozen until April 2028, so it may be in April 2026 once triple lock is applied. The state pension would probably use up most people’s tax free personal allowance.

Will the government continue paying the triple lock in future years ?

This question is asked many times by the pubic, tv commentators, politicians and constant news articles. Especially at the time of the budget, or autumn statements are being spoken about.

At present, there is no plan to amend the current criteria, or stop future increases, it may be seen as political suicide. Solely based on the number of pensioners in receipt of this benefit. It is believed that over 12 million people are receiving the state pension at present.

The big debate is about the ever increasing numbers that will be claiming it in future. As more and more people become older. Plus the fact that people are now living longer due to improved lifestyles and better medicines and level of healthcare in place.

It may well be that the system changes in future as it will become unaffordable. But it will be subject to passing laws in Parliament and a certain timeframe will apply. The obvious answer it to keep increasing the state pension age in future for when it comes into payment.

If you found the information in the blog post helpful, or wish to check out other posts on pensions, personal finance and investing. Check them out on https://moneyminted.co.uk