Back in 2010, the Conservative/Liberal Democrat coalition government introduced the “triple lock” – a mechanism to ensure that the State Pension kept pace with the rising cost of living.
Since its induction, the triple lock has protected the value of the State Pension, ensuring that it rises annually with inflation and wages across the UK. Despite being part of government policy for so long, it hasn’t always been smooth sailing for the financial mechanism; due to distorted earnings figures following the Covid pandemic, it was suspended in 2021.
There has been much speculation that the government would once again decide to suspend the triple lock in light of soaring inflation. However, in his autumn statement, the chancellor confirmed that the triple lock would be honoured in 2023, resulting in a considerable increase to the State Pension.
Read on to find out more about the triple lock, and exactly why the State Pension is set to rise sharply in 2023.
The triple lock ensures that the State Pension reflects current economic conditions
The triple lock ensures that the State Pension increases in line with the rising cost of living each year. As the “triple” in the name suggests, the annual increase to the State Pension is determined by the higher of these three measures:
- Inflation, measured by the Consumer Price Index (CPI) of the previous September
- The average increase in wages for the year
When millions of Brits returned to work having been furloughed during the Covid-19 pandemic in 2021, there was an artificial boost in average wages, which, according to the Office for National Statistics, increased by 8.8%.
This means the State Pension would have risen by 8.8% in 2022/23. So, while struggling to meet the cost of pandemic support – indeed, the BBC reports that the furlough scheme alone cost the government £70 billion – the government decided to suspend the triple lock for the 2022/23 tax year. The Times Money Mentor states it would have cost an extra £3 billion to uphold.
Instead, it was essentially demoted to a “double lock” in 2022/23, and as such, the State Pension only increased in line with the CPI, which was 3.1%.
The triple lock will be honoured in the 2023/24 tax year
Ahead of the autumn statement, many experts predicted that the triple lock would be suspended again in 2023/24 as the new chancellor, Jeremy Hunt, was still trying to balance the books.
However, in the autumn statement in November, the government reaffirmed its commitment to the triple lock for the 2023/24 tax year. This means that the State Pension will rise in line with September’s CPI figure, resulting in a 10.1% increase.
This is the largest single boost to the State Pension in history, meaning the benefit will reach its highest-ever value.
After April 2023, this will result in payments of £203.85 a week for the full new flat-rate State Pension for those that reached pension age after April 2016, an increase from £185.15.
Meanwhile, those who reached pension age before April 2016 and are on the full basic State Pension can expect to now receive £156.20 a week. This is a rise from the previous rate of £141.85.
This is a significant increase and will help millions around the country. So, with inflation still high and a recession looming, what does this boost mean for you?
What this means for you
If you’re on the full new State Pension, this 10.1% increase will receive £19 more every week, which, over the entire year, will amount to £988.
Meanwhile, those on the full basic pension will see an extra £14 a week, which totals £728 over a full calendar year.
While your State Pension may not be sufficient to maintain your standard of living, it provides a valuable bedrock in later life. So, this 10.1% increase will help to ensure that the value of the pension keeps pace with the cost of living.
Even if you haven’t yet reached State Pension Age, you will still benefit from the significant increase in 2023, as it will be “baked in” for future years.
Get in touch
If you wish to discuss how your finances could be influenced by the honouring of the triple lock, please get in touch. Contact us by email at email@example.com or call us on 01189 876655.
This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.