Highlights
- Hymans Robertson estimates the full new state pension could reach £33,500 a year by 2050 under the proposed changes, compared with £35,100 under the current triple lock.
- The revised formula is expected to apply from 2030, with increases based on inflation, 2.5 per cent or a new earnings link.
- The government says the state pension will continue to rise each year and has pledged to keep the existing triple lock for the rest of this parliament.
People planning for retirement could need to look more closely at their future state pension income as Labour prepares to change how payments increase each year.
Analysis by pensions advisers Hymans Robertson suggests the proposed changes to the triple lock could leave the full new state pension almost £1,600 a year lower by 2050 than under the current system.
The firm's calculations put the annual pension at £35,100 by 2050 if the existing triple lock remained in place. Under the proposed revised formula, it could instead reach £33,500.
The figures are long-term projections rather than an immediate reduction in payments. The change is expected to begin in 2030, and the actual pension amount will depend on inflation, wage growth and the final rules adopted by the government.
What is changing in the triple lock?
The triple lock currently guarantees that the state pension rises each year by whichever is highest: wage growth, inflation or 2.5 per cent.
Labour plans to adjust the mechanism from 2030. Under the proposal, the wage-growth element would be replaced by the amount needed to maintain the pension's value relative to average earnings. The annual increase would still be based on the highest of that measure, inflation or 2.5 per cent.
The Department for Work and Pensions has said the new earnings link would be at least 30 per cent, although the final figure has not been confirmed.
The triple lock was introduced by the coalition government in 2011 and first applied in 2012. Since then, it has increased the basic state pension by 81 per cent and the new state pension, introduced in 2016, by 55 per cent.
Prime Minister Andy Burnham confirmed last month that the mechanism would be replaced from 2030. The government says the revised system will maintain the pension's value while reducing long-term pressure on public finances.
For people approaching retirement, the important distinction is that the proposed change concerns how the pension grows over time. It does not mean that every pensioner will see their current payment cut by £1,600.
Will the changes affect pensioners now?
The government has pledged to retain the existing triple lock for the rest of this parliament. The DWP says this will increase the new state pension by more than £2,000 and take it to a forecast record level by April 2029.
The longer-term reform is intended to help fund a proposed National Care Service, but there are questions about whether it will generate enough savings.
Hymans Robertson estimates that the adjusted triple lock could save around £25bn by 2049-50, half the £50bn projected by the government. The firm said economic volatility could reduce the savings, depending on how inflation and wage growth develop.
William Nixon of Policy Exchange said the revised mechanism could still face difficulties if inflation outpaced wage growth. He also questioned whether the changes would fully fund a new social care system by 2030, which he said could cost around £18bn a year.
Calum Cooper of Hymans Robertson said the adjusted system would maintain an earnings link while reducing long-term pressure on the government and taxpayers. However, he warned that private pension saving would become more important as the state pension was put on a more sustainable footing.
The DWP said the settlement was a better deal for pensioners and their families, with the state pension continuing to rise each year by at least the highest of 2.5 per cent, inflation or the new earnings link.
For people planning their retirement, the proposed change underlines the importance of considering other sources of income alongside the state pension. The £1,600 figure is a projection for 2050, not a guaranteed loss, but it highlights how changes to the annual uprating formula could affect the amount future pensioners receive over time.
