The State Pension is a regular payment made by the government to people of pension age. The age you’ll begin to receive your pension depends on the year you were born. It’s currently 66 years of age for both men and women but will increase from 2026. You must also have made a specified level of National Insurance contributions throughout your working life.
Over recent weeks and months you may have heard talk of the State Pension Triple Lock, due to the high levels of inflation. Read on to find out what the Triple Lock is, why it was frozen in 2022 and what was announced about it in the Autumn Statement in November 2022.
What is the State Pension Triple Lock?
The State Pension Triple Lock, first introduced in 2010, is a policy that was put in place to ensure that the State Pension is protected from inflation. It guarantees that each year in April, the pension will rise by the highest of three factors (determined the previous November):
- The level of inflation (as determined by the Consumer Prices Index) the previous September
- The average increase in earnings the previous July
- 2.5%
The minimum increase each April will therefore be 2.5%, and will help protect pensioners from the increased cost of living. Without an increase in State Pension, the pension would be worth less against the increased price of goods and services.
What happened to the Pension Triple Lock in 2022?
At the end of 2021, the government announced that the Triple Lock would be suspended for the 2022-2023 financial year. Following the Coronavirus pandemic, the average increase in earnings was 8%, which at the time would have caused the biggest single rise in State Pension payments. As the pandemic had also significantly stretched the government’s finances, this criterion was removed from the Triple Lock. The State Pension increase was determined by the greater of: the level of inflation, and 2.5% – it therefore increased by September 2021’s inflation level of 3.1%.
What was announced in the Autumn Statement in November 2022?
Prior to the Autumn Statement in November 2022, there was concern amongst pensioners that they would not get the full 10.1% increase that the Triple Lock guaranteed them (the level of inflation in September 2022). By reinstating the average earnings factor and removing inflation as a criterion, the government could have saved £billions!
However, Chancellor Jeremy Hunt confirmed that the full Triple Lock would be reinstated from April 2023, with the State Pension rising by 10.1% from April 2023. This is the largest single increase in the State Pension since its creation!
The 10.1% increase translates to an increase of £870 per year, bringing the annual pension total to £10,600.20. Pensioners on the lowest incomes also receive Pension Credit, which will also be increasing by 10.1% in April. All pensioners will also receive a cost of living payment of £300.
What does this mean for you?
Those of State Pension age will be pleased that they will receive the full increase that the Triple Lock guarantees them. However they should be mindful that the increase will not take place until April 2023. Depending on other income streams, they should also be aware that this increase in State Pension payments may move their income above the tax-free threshold. Therefore tax may be due on any income received above this level.
If you’re not yet at State Pension age, you may think this doesn’t impact you. However as well as the fact that the pension age is set to increase, the amount you receive is not guaranteed to increase in line with the cost of living. Most people will find their State Pension payments significantly lower than their previous income, and therefore this is a great time to consider a private pension, if you don’t already have one.
If you have more than one workplace pension (if you have worked at more than one business since the auto-enrolment for workplace pensions came in 2012), we can help you locate and then consolidate your pensions. Find out more here.
