State pension payments to exceed £11,000 next year but calls to ‘replace’ triple lock rise | Personal Finance | Finance

What is the triple lock?

This is a pledge by the Government to raise the state pension every year based on either the rate of inflation, average earnings or by 2.5 percent.

Whichever is higher is used as the metric to hike payment rates with pensioners guaranteed to receive a sizable increase annually.

Based on the rate of average wages plus bonuses, state pensions are likely to be awarded a 8.5 percent increase next year.

This would represent the second-biggest rate hike in the history of the triple lock behind last year’s rise.

If implemented, the new state pension will jump from £203.85 per week to around £221.20, while the basic equivalent will increase to £169.50 weekly.

However, experts are warning that future Governments will need to address the cost of the triple lock on the taxpayer and find a more secure way of funding people’s retirement.

Jon Greer, head of retirement policy at Quilter, explained: “At some point whichever party is in government needs to face up to the fact that we need to look at the policy and replace it with something that can help ensure future generations can have access to a state pension that is of a meaningful value and is sustainable and fair.

“The triple lock can be financially unpredictable as we have seen over the past few years where soaring inflation and wage growth has triggered a significant state pension uprating.

“In years where inflation or average earnings growth spike significantly, the cost to the Treasury is immense and uncertain.”

According to the retirement expert, there are options available to secure a “fair distribution of economic prosperity”.

Mr Greer added: “Pegging pensions to a fixed percentage of average earnings provides is a more predictable and sustainable model. Tying pensions to a percentage of average earnings, mean that the state pension would rise in line with the prosperity of the country.

“If the nation prospers and average earnings increase, so too would pensions. Conversely, if the country faces economic challenges and average earnings stagnate or decrease, pensions would reflect this.

“This ensures a fair distribution of economic prosperity (or challenges) across generations.”