What is the pensions triple lock and how does it work?

More than 12 million people receive the state pension. Credit: PA

Inflation is back in the double digits, and speculation is swirling the government could break its promise on the pensions triple lock guarantee.

At Prime Minister's Questions on Wednesday, Liz Truss committed to increasing state pensions in line with rising inflation, despite reports claiming she was poised to overturn the Tory party's manifesto pledge.

Alarms were sounding over the pensions guarantee, after new chancellor Jeremy Hunt launched a mission to plug a multi-billion pound black hole in the UK economy.

But what exactly is the pensions triple lock and how much of a difference does it make to pensioners' financial outlooks?

What is the pensions triple lock?

The triple lock guarantees that the state pension grows every year in line with inflation, with earnings, or by at least 2.5% - whichever of the three options is highest.

Ordinarily, September’s inflation figure, at 10.1%, would be part of the calculation.

The policy helps to ensure pensioners’ living standards keep up with those of the wider population.

More than 12 million people currently receive the state pension.

What has happened to the triple lock?

The triple lock was previously paused for a year, as the Covid pandemic had distorted the wages element of the triple lock.

In 2022, pensions rose by 3.1%.

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Will the pensions triple lock end?

Ms Truss had previously stated she was committed to the triple lock.

However, there have been indications that ministers could ditch the commitment, with the chancellor searching for ways to repair some of the market turmoil triggered by the mini-budget.

During a Cabinet meeting on October 18, Mr Hunt told colleagues that they must find savings from their departmental budgets.

The prime minister had said as recently as October 2 that state pensions would increase in April through the triple lock.

But after she sacked Kwasi Kwarteng as chancellor, Ms Truss has relented on her pledge.

Why would axing the triple lock be controversial?

Politically, it could inflict further damage, following a string of recent policy U-turns.

It was a Conservative manifesto pledge and its previous suspension had been viewed as a one-off to address the economically distorting impact of the pandemic.

Ditching the promise would affect some of the most vulnerable people in society, many of whom live on fixed incomes, as high inflation wreaks havoc with household budgets.

However, some may make arguments around “intergenerational fairness”, with many working age people receiving pay rises well below the current rate of inflation.

And a row is simultaneously brewing over whether to raise benefits in line with wages, or with inflation.Campaigners are warning vulnerable families could be plunged into crisis if it is begged to wages.

Child Poverty Action Group (CPAG) based its warning 200,000 children could be pushed into poverty on estimates of earnings rising by around 5% and inflation running at roughly 10%.

What impact would there be in cash terms if pensions rose in line with earnings next April instead of inflation?

If pensions rose by 5.5%, in line with earnings, the weekly new state pension would be £195.35.

But if it rose in line with Consumer Prices Index (CPI) inflation, at 10.1% it would be £8.50 per week higher, at £203.85.

As a result, this would add up to a difference of £442 over the course of a year in pensioners’ pockets.