Has the triple lock been fixed?

So Heidi, we should make sure that our lovely listeners are all starting from the same page here.

So let's kick off with what is the old triple lock?

So what the old triple lock does, it means that every April, the value of the state pension, or actually the new state pension, the basic state pensions or the flat rate parts of the state pension, that increases in line with the highest of two and a half percent average earnings growth and inflation, so the rate at which prices are increasing.

So that's what we've had in place since, uh, twenty eleven.

And why don't we like it?

Well, so basically, what, what the triple lock does is it increases the value of the state pension every year by one of these three numbers, whichever is the highest.

And then because the next year, if another one of them is higher than the, than what we had previously, then we lock in these higher levels of the state pension.

And especially we usually think about increasing the state pension or the level of it relative to earnings.

And basically, when earnings growth is, uh, slower and inflation's higher, we then increase the value of the state pension relative to earnings.

But then when earnings growth returns back to a higher level, we basically just continue increasing the value of the state pension from that higher level.

So that's what we mean by the kind of ratchet effect that you might hear about.

So over time, pensions are increasing rela-relative to average earnings, but not in a predictable way, in a way that's completely determined by kind of the vagaries of inflation and the volatility in the economy.

And the more volatile it is, the bigger that gap, that gap grows.

Yeah, exactly.

So the value of the state pension actually grows much faster a-against relative earnings when the economy isn't doing so well, when average earnings growth is low, when other people in the economy kinda aren't benefiting go- from those kinds of increases.

So, so that's one kind of strange part of it.

And then, you know, as you said, it's completely unpredictable.

So because these changes compound, uh, you know, i-increases add on one after the other, it's very difficult even, say, five years from now to, to know exactly where we are in the terms of state pension, but especially when we're thinking about ten, 20, 30 years from now.

Uh, you know, it's just because it depends on whichever is highest of two and a half percent inflation and average earnings growth in any given year, it's really difficult to know where we're gonna end up.

And, and, and the unpredictability of the old triple lock undermines what I think is, is kind of the kind of intellectual case for the triple lock, right? So some people want a higher state pension.

They want us to be spending more.

They think the triple lock generates a, a higher state pension.

Uh, it does, but it might generate a slightly higher state pension.

It might generate a hugely higher state pension.

There's no way of knowing.

So Heidi, we should make sure that our lovely listeners are all starting from the same page here.

So let's kick off with what is the old triple lock?

So what the old triple lock does, it means that every April, the value of the state pension, or actually the new state pension, the basic state pensions or the flat rate parts of the state pension, that increases in line with the highest of two and a half percent average earnings growth and inflation, so the rate at which prices are increasing.

So that's what we've had in place since, uh, twenty eleven.

And why don't we like it?

Well, so basically, what, what the triple lock does is it increases the value of the state pension every year by one of these three numbers, whichever is the highest.

And then because the next year, if another one of them is higher than the, than what we had previously, then we lock in these higher levels of the state pension.

And especially we usually think about increasing the state pension or the level of it relative to earnings.

And basically, when earnings growth is, uh, slower and inflation's higher, we then increase the value of the state pension relative to earnings.

But then when earnings growth returns back to a higher level, we basically just continue increasing the value of the state pension from that higher level.

So that's what we mean by the kind of ratchet effect that you might hear about.

So over time, pensions are increasing rela-relative to average earnings, but not in a predictable way, in a way that's completely determined by kind of the vagaries of inflation and the volatility in the economy.

And the more volatile it is, the bigger that gap, that gap grows.

Yeah, exactly.

So the value of the state pension actually grows much faster a-against relative earnings when the economy isn't doing so well, when average earnings growth is low, when other people in the economy kinda aren't benefiting go- from those kinds of increases.

So, so that's one kind of strange part of it.

And then, you know, as you said, it's completely unpredictable.

So because these changes compound, uh, you know, i-increases add on one after the other, it's very difficult even, say, five years from now to, to know exactly where we are in the terms of state pension, but especially when we're thinking about ten, 20, 30 years from now.

Uh, you know, it's just because it depends on whichever is highest of two and a half percent inflation and average earnings growth in any given year, it's really difficult to know where we're gonna end up.

And, and, and the unpredictability of the old triple lock undermines what I think is, is kind of the kind of intellectual case for the triple lock, right? So some people want a higher state pension.

They want us to be spending more.

They think the triple lock generates a, a higher state pension.

Uh, it does, but it might generate a slightly higher state pension.

It might generate a hugely higher state pension.

There's no way of knowing.