The current “triple-lock” mechanism is in place until 2022. It’s hotly debated, with some in favour of it and others deeply criticising it. But is the meaning of triple-lock? What impact does it have on society?
What is the triple lock system?
The triple-lock mechanism is a guarantee to increase the state pension every year by the higher of inflation, average earnings or a minimum of 2.5 percent.
This means, despite the worrying coronavirus situation, your State Pension is protected by the triple-lock mechanism.
Both the basic and new State Pension increases every year until 2022, no matter what.
This year, the State Pension rate increased by 3.9 percent in accordance with wage growth.
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When was the triple lock mechanism introduced?
The triple lock mechanism was brought in by the Conservative-Liberal Democratic government.
The system was introduced in 2010.
There has always been a debate on whether the system is too generous, and whether it or not it is sustainable to today’s workers.
Today’s generation of workers fund the system via National Insurance contributions.
Is the Triple-lock mechanism a good thing?
The idea behind the triple-lock is to protect pensioners from insignificant increases in their pension.
For example, in the year 2000, the pension was increased by only 75p.
The promise to raise the pension yearly by the higher of inflation, average earnings, or 2.5 percent means pensioners income is in line with the increasing cost of living.
This means pensioners are able to purchase the same amount of goods as last year.
If the pension rate was connected by average earnings, and inflation is higher than average earnings, pensioners would struggle to buy what they need.
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Is the government getting rid of the triple lock?
A think-tank has suggested the government should get rid of the triple lock, as part of an “intergenerational reciprocation” for the costs of battling COVID-19.
The think tank in question is Social Market Foundation (SMF).
One of its briefing papers, titled “Intergenerational fairness in the coronavirus economy”, has warned that public sector net borrowing could rise above £200billion per year.
This is higher than that seen in the financial crisis.
The SMF has said that the triple lock mechanism should be replaced with a “double lock” system.
What will happen if the government get rid of the triple lock system?
According to the paper, a double lock mechanism would save around £4billion a year.
It says: “The ‘triple lock’ ensuring substantial rises in the basic state pension triple should be replaced with a ‘double lock’, tying increases to earnings or inflation (whichever is higher),” it suggested.
“This could contribute £20billion to deficit reduction over the next five years.
“Pensions would still rise, but less quickly, reducing the fiscal burden on the working-age population.”
The SMF’s recommended double lock policy would include a 2.5 percent minimum uprating.”
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