The triple lock was introduced to the UK State Pension in 2010. The guarantee gives assurance that State Pensions won’t lose value in real terms, and that the payments would increase year-on-year at least in line with CPI inflation rates. To make the guarantee even more secure for retirees, the triple lock includes three different measures of inflation – hence the name. The three-way guarantee sees that every year, the State Pension would rise by the highest of either average wage earnings, inflation rates or 2.5 percent.
In other words, if average earnings were to climb by three percent, so would the triple lock.
But if neither average earnings or inflation rates rise by more than 2.5 percent, the State Pension would still get a 2.5 percent increase.
While the guarantee has provided financial stability to pensioners claiming the Government payout, Jon Greer, head of retirement policy at Quilter, told Express.co.uk the scheme could be scrapped.
Mr Greer said: “The triple lock guarantee faces two existential challenges this year which could force the Government to review the promise.
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“The first is that once the furlough scheme comes to a close this year and wages begin to recover, average earnings growth is expected to bounce back, creating a one-off spike in wage growth which could be as high as five percent.
“The second threat is from the sheer cost of providing a minimum floor to State Pension increases.
“Pensioner spending is predicted by the Office for Budgetary Responsibility (OBR) to rise 27 percent by 2025/2026 and this will place further strain on the nation’s already stretched public finances.”
Baroness Stedman-Scott, the DWP’s Minister in the Lords, said any future decision on the triple lock will be made “in the context of the wider public finances”.
“The Government will be weighing up the economic cost of the triple lock on the purse strings against the political cost of the backlash that will ensue if they change the lock.
“If they do decide to make the changes, the Budget may not be the desired moment as the Chancellor is still in fire-fighting mode, and will likely hold fire on radical spending cuts for the moment.”
Pensioners rely heavily on the triple lock, especially those without private or workplace pensions who depend entirely on the state’s payout to survive.
When asked what impact getting rid of the lock will have on pensions, Mr Reed said that “all depends on what comes next.”
But it’s not all bad news, as even if the Government decides to scrap the triple lock, they’ll likely implement a similar system in its place.
The pensions expert concluded: “The Government could go down a simple route of tying pension uprating to just inflation or just earnings growth, but this would still make the mechanism vulnerable to anomalies.
“There have instead been suggestions for the Government to replace the triple lock with a ‘smooth earnings’ link to provide a link to long-term wages while offering protection in periods of high inflation.
“It is one of a range of options for uprating the State Pension sustainably over time. However, it is dependent upon determining a fair level at which set State Pension incomes as a proportion of earnings.”