Are the days to the State Pension ‘Triple Lock’ coming to an end? And if so, why might this be the case?

As a reminder, the so-called Triple Lock is the mechanism by which the State Pension automatically increases each year by the highest of inflation, wages or 2.5%.

This week saw the announcement by the ONS that earnings (including bonuses) went up by 8.5% in the May-July period. The inflation figure used to assess which will drive the April 2024 pension increase is September CPI, published on the 18th October. This is unlikely to be higher.

This follows an inflation-linked increase this year of 10.1%. Good news for pensioners, but not so great for a government facing significant spending pressures and urging restraint when it comes to wage increases.

Until now the Triple Lock has been something of a political sacred cow. Conservative and Labour party politicians alike know full-well that older people have a higher propensity to vote than their younger counterparts, so hitting them in the pocket is risky.

However, large their current lead looks, for a Labour party seeking to overturn a massive Tory majority this looks like more of a gamble, as generally people’s voting allegiances change from red to blue as they get older.

But for all that the State Pension is becoming an increasingly onerous financial burden. A recent report published by the Institute for Fiscal Studies (IFS) points out that “Compared with the state pension rising in line with prices or earnings, the government now spends an additional £11 billion per year on state pensions as a result of the triple lock”.

In April this year the Office for Budget Responsibility forecast that the total cost of the State Pension would be £135 billion in 2024-25, taking some 42% of total welfare spending. That’s an enormous number when one considers that the IFS forecasts total tax revenues in 2023-24 of £915 billion.

Whilst the political blowback might be negative in the short-term, politicians will need to be mindful of the fact that any increase in the State Pension draws in funds that could be spent elsewhere.

In addition they may wish to consider the rising costs of health and social care, which arguably also benefit pensioners disproportionately. All of this also needs to be seen in the context of an ageing population.

A point may come where those of working age become more politically engaged precisely because they wake up to the fact that more and more of their taxes are being spent on those in retirement rather than on services from which they themselves benefit directly.

The removal of the Triple Lock would be a first tentative step in redressing this trend, but it would be no more than that. As I have argued before, over time I foresee the State Pension becoming more like other benefits: a means-tested fall-back for those without other financial resources to support themselves.

Never has private pension saving been more important.