What would the State pension be worth without the Triple Lock?

Q: The triple lock on pensions has been kicked hard of late, but no one that I have read has ever stated just how many times the 2.5% parts has been used. My question is how many times it has been activated, and what effect would have been felt by pensioners had it not been available?

Hello and thanks very much for your question. As you know, the Triple Lock is the promise, first introduced in 2011, to raise the State Pension each year by the highest of either inflation, wages or 2.5%. It guarantees the State Pension will never lag any of these measures - not just over extended periods but in each and every individual year as well.

But it’s getting increasingly expensive to fund - hence the kicking it tends to get from its critics.

• Read: Triple Lock: what will the State Pension be worth in the future?

You ask a very interesting question about the 2.5% element of the lock, because that’s the part those critics usually say should be scrapped. This is on the basis that it is fair the State Pension should rise by at least the rates of inflation and wages so that it doesn’t a) lose value in real terms or b) leave pensioners getting poorer relative to working people. The 2.5% element is not necessary to achieve these aims.

Below is a table showing the annual rises in the State Pension, and in each of the elements that comprise the Triple Lock, going back to the year of its introduction in 2011. You can see the four occasions on which the 2.5% element has been applied.

Source: House of Commons, Fidelity
* RPI used for the first uprating after introduction of Triple Lock
** Triple Lock suspended and CPI used to account for earnings anomalies following the Covid pandemic

The biggest boost it has given came in 2021 when the highest alterative measure was inflation at 0.5%. In other years it has been applied the effect has been less dramatic.

However, as with the Triple Lock generally, it is the accumulative effect of slightly higher rises year after year that can add up to a big difference over the long term.

To show that, I worked out what would have been the effect of applying the next highest measure in those years when the 2.5% element applied. To do this I’ve worked out the effect on £100 of State Pension income from 2011 until now, rather than the actual value of the benefit, because what counts as a full State Pension has changed in that time.

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Prior to 2016, eligible retirees would receive the ‘Basic State Pension’, plus any extra additional State Pension entitlement they had built up. Those starting to claim their State Pension after 2016 have received the ‘New State Pension’ - a higher amount but with reduced possibilities to boost this with additional payments.

With the full Triple Lock in place £100 of State Pension in 2011/12 will have grown to £180.70 in 2025/26.

Had a ‘Double Lock’ of just the highest of wages or CPI been applied, the figure in 2025/26 would stand at £174.24.

The difference will clearly grow if more years arrive when the 2.5% measure is used. That won’t be next year when a 4.8% rise based on wages will be applied but with inflation and wages headed downwards the 2.5% promise could prove valuable again very soon.

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Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.