What is state pension triple lock?

First, what is a state pension?

A state pension is a regular income paid by the government to someone who doesn’t work any more.

A state pension triple lock simply refers to how much the raise of the pension is marked against. We explain what 3 measurements are used in a state pension triple lock and how it could effect you.

What you’ll get.

How much state pension you get will depend on your National Insurance record.

The full basic state pension is £185.15 per week for the tax year of 2022/2023.

Basic state pension historical data.

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Date effective
April 2020
April 2019
April 2018

Per week – Single person
£134.25
£129.20
£125.95

Per Annum – Single person
£6,981.00
£6,718.40
£6,549.40

You might be able to get more State Pension if your are eligible for additional state pension or you delay/defer taking your state pension.

How to qualify.

To qualify for State Pension you need a total of 30 qualifying years of National Insurance contributions. If you fall shy of the 30 years you are able to pay voluntary contributions to make up years to reach the full State Pension.

If you have fewer than 30 years of qualifying years then your basic State Pension will be less.

To find out how many qualifying years you have you can follow this link:

https://www.gov.uk/check-national-insurance-record 

You usually need a minimum of 10 qualifying years on your National Insurance record to get any State Pension.

How its paid.

The day you get paid from National Insurance depends on your National Insurance number.

Last 2 digits of your National Insurance number.

00 to 19

20 to 39

40 to 59

60 to 79

80 to 99

Day your State Pension gets paid

Monday

Tuesday

Wednesday

Thursday

Friday

Pension legislation

What is State Pension triple lock?

The State Pension triple lock refers to the idea that the State pension rises inline with the highest of 3 measurements per year. While triple lock is common, using 3 measurements, the government can decide to reduce state pensions down from a triple lock to a double lock.

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The state pension triple lock was introduced to the UK state pension in 2010. Its a guarantee that the state pension would not lose value in real terms and that it would increase at least in line with inflation.

To guarantee a more secure future than the single lock the triple lock was created, using 3 separate measures of inflation.

Triple lock.

As mentioned the state pension triple lock refers to using 3 separate measures of inflation but what are these measurements?

  1. A flat 2.5% rise
  2. Average earnings growth (measures from May to July)
  3. Inflation (measured in the year from September)

The triple lock has been a core commitment from every government since 2010. It was announced by the coalition government made up of the Conservatives and Liberal Democrats.

The government uses the state pension triple lock to ensure that peoples retirement benefits keeps up with the pace of the rising cost of living.

There have been critics of the triple lock pension and have often spoke out claiming that it is to expensive to maintain over the long run.

Double lock.

On November the 2nd 2022 the House of Lords voted to amend the Social Security bill to keep the earnings like of the triple lock in place next year. But the Average earnings growth has been suspended by the government for the 2022-2023 year, this is due to a higher rise in wages due to inflation over the pandemic.

The department for Work and Pensions, who are responsible for the state pension, estimates the total state pension bill for 2021-2022 will be £104.86bn. Which increased over 50% in 2010 from £69.83bn.

About 60% of the total UK spend on welfare payments goes to pensioners.

State pension triple lock: increases since 2011.

Financial year

2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
2018/19
2019/20
2020/21
2021/22
2022/23

State pension rise

4.6%
5.2%
2.5%
2.7%
2.5%
2.9%
2.5%
3%
2.6%
3.9%
2.5%
3.1%

Increase cause

RPI
CPI
2.5%
CPI
2.5%
Earnings
2.5%
CPI
Earnings
Earnings
2.5%
CPI

Source: https://commonslibrary.parliament.uk/research-briefings/cbp-7812/

Increasing pensions

How to ensure a healthy retirement?

While a state pension triple lock is generous it is widely known that state pension alone will not be enough to fund a comfortable lifestyle in retirement.

As a result professionals advise that additional savings are made to invest towards a comfortable retirement. As a result, the government has took initiative and created a opt out work place pension, the pension itself is known as defined contribution pension.

A defined contribution pension refers to a set amount, which you agree to, of how much of your pay check is put towards your pension. The basic percentage offered to most is 3% of your salary each time you get paid and your employer has to input a minimum of 5%, this brings the total contribution towards the pension of 8%.

Your workplace may use Nest – National Employment Savings Trust, Check out our article which goes into more detail about this work place pension:
https://www.sensibleinvestors.co.uk/banking-savings/pensions/what-is-a-nest-pension/

You additionally may wish to save further for retirement on top of the Work place pension & state pension.

When it comes to additional pension accounts there are two options, a SIPP (Self Invested Personal Pension) or a LISA (Lifetime ISA).

SIPP.

A Self Invested Personal Pension (SIPP) is a pension wrapper which allows you to build up a pot of money for when you retire. This type of pension allows much more flexibility with the types of investments you can chose compared to the traditional pension.

As a SIPP is a pension wrapper it means you get tax relief on any contributions to the SIPP.

Contributions made to a SIPP receive tax relief at source, subject to certain conditions.

For example if you contribute a lump sum of £2,000 into your SIPP you’ll get £500 tax relief from the government, giving you a total of £2,500 invested into the account.

If you are a higher-rate tax payer (40%) you can claim additional tax relief up to £500 through the self assessment tax return. If you are a additional tax payer you can claim up to an extra £625.

These accounts do have restrictions on when you are able to withdraw your money.

From the age of 55 (rising to 57 in 2028) you can chose to begin withdrawing money from the pension pot for retirement.

LISA.

A LISA account is another great additional account which can be used along side a work place pension to strengthen your retirement funds.

Much like the SIPP you are able to receive 25% ‘bonus’ on any money deposited into a LISA account.

The LISA has additional benefits of being a ISA, a tax advantaged account meaning you wont pay any dividend or CGT tax.

There is limitations to this account that you are only able to put up to £4,000 a year into it, receiving the 25% bonus increases the account to £5,000. In addition that as the LISA is part of the ISA account family that any deposits into the account count part of your £20,000 per year allowance.

The access age for the LISA is 60 plus but if you withdraw before the age of 60 you will pay a 25% penalty which may result in a withdrawal of less money than you put in.

If you are interested in learning more about LISA accounts check out our article: https://www.sensibleinvestors.co.uk/banking-savings/isas/lisa-eligibility/

Summary.

While having a state pension triple locked is good, guaranteeing at least a 2.5% increase, it is generally thought that this alone will not be enough to retire on.

That is why having additional pension pots such as the work place pension, SIPP or a LISA account will be key to a comfortable retirement.

With work places being mandated for auto enrolment into schemes such as the National Employment Savings Trust (NEST) is a great way to help people build up these pots, even some go as far to say these also are not enough to create a comfortable retirement.

In addition to having a large enough pension pot for the desired retirement its also a good idea to keep an eye on the dates which you are able to access your pension pots without penalties.

As a recap in the year 2022/23 here are the access ages for each type of pension:
State pension: 66
Workplace Pension: 55*
SIPP: 55*
LISA: 60

*Raising to 57 in 2028

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