DWP State Pension triple lock update on moving to means-tested model

Experts have warned the Government may soon have to tweak the triple lock policy as the costs of the state pension continue to mount.

The triple lock ensures state pension payments go up each April in line with the highest of 2.5%, the rise in average earnings or inflation.

But with large payment increases in recent years including 8.5% and a record 10.1% in 2023, the costs of the policy continue to mount for the Treasury.

Claire Trott, head of Advice at investment firm St James's Place, said: "The long-term affordability of the triple lock has been questioned for some time and understandably so.

"With people living longer and the triple lock delivering higher increases more frequently than originally anticipated, the cost has exceeded expectations and is only set to rise further. Yet despite the fiscal pressure, it remains a politically sensitive promise."

Ms Trott weighed up one alternative to the current system, of switching to a means-tested model. She said: "If reform were to be considered, any proposal would need to ensure adequate support for those on the lowest incomes.

"Means testing is often raised as a solution, but in practice it's unlikely to be pursued, given the cost and complexity of implementation outweighing the savings.

"There are other options such as freezing the state pension and increasing access to Pension Credit which might be a more pragmatic route - it's already in place and better targeted to those who need help most."

The full new state pension is currently worth £230.25 a week, and you typically need 35 years of National Insurance contributions to qualify for this.

Another option to ease the rising costs is to increase the state pension age, the age when you can claim the payments. The state pension age is currently 66 for both men and women, although it is increasing to 67 over the coming years.

Ms Trott said: "Raising the state pension age has been controversial in the past, but it's arguably the most viable and publicly palatable option in the longer term, as people continue to live and work for longer."

Labour has committed to keeping the triple lock for the duration of this Government, with state pensioners getting a 4.1% pay boost in April in line with the policy.

Some experts are predicting the policy may soon have to change after the current administration ends. Tomm Adams, partner at tax advisory firm Blick Rothenberg, said: "We will likely see the triple lock pension end when the current Parliament does, as the cost of providing it to the UK's aging population is increasing and Government debt is rising."

Recent figures from the OBR found the cost of the state pension is set to rise to £15.5billion a year by 2030, three times more expensive than previous forecast when the triple lock came in, back in 2011.