The new ‘double lock’

For clients decades from retirement, the biggest lesson is not to build a plan that depends on one government formula surviving for 30 years.

Removing earnings from the annual lock could mean the State Pension grows more slowly during periods of strong wage growth. Over a long retirement, that compounds, so private pensions and investments may need to do more of the heavy lifting.

But I would not suddenly tell clients to save more because of one announcement. Good retirement planning should already stress-test different State Pension outcomes, inflation and longevity.

From an adviser’s perspective, a double lock may make annual increases slightly easier to model, but policy risk remains.

The State Pension should be treated as one layer of retirement income, not the entire retirement strategy.

The more control clients build privately, the less one political announcement can rewrite their retirement.

We’re probably the only country where the Pensions are currently locked up better than the criminals. The triple lock has needed review for some time and whilst Pensioners may not like it, there are ways to protect them in retirement in a more affordable manner. The promises Burnham made in his speech today will require a hell of a lot of funding though, so the double lock will be the first of many controversial announcements as he scrapes around to find money to pay for all these promises. This budget will be interesting.

The State Pension should be the foundation of a retirement plan, not something you build the whole house on.”

Moving away from the triple lock could mean the State Pension grows more slowly over time than clients have become accustomed to, although the proposed system is still intended to protect against inflation and maintain a longer-term link with earnings.

For clients, the lesson is not to panic or suddenly increase pension contributions because of one policy announcement. Retirement planning can span 30 or 40 years and governments, tax rules and pension policy will change during that time.

We already model the State Pension alongside private pensions, ISAs and other income and stress-test different assumptions. If anything, this reinforces the importance of building sufficient private retirement savings rather than relying too heavily on future government policy.

A good retirement plan should be able to absorb changes in the rules without falling apart.

Reforming the triple lock is necessary for long-term fiscal prudence, but removing the link with earnings is not the route I would have taken.

We have been here before. The earnings link was removed in 1980 and over the following decades the State Pension fell substantially relative to average earnings. Indeed, reversing that erosion was one of the reasons the triple lock was introduced in the first place.

Removing earnings while retaining the arbitrary 2.5% floor risks repeating that mistake. Pensioners could gradually fall behind the living standards of the working population, punctuated by occasional boosts when inflation and earnings happen to be below 2.5%.

The real problems with the triple lock are the fixed 2.5% floor and the lack of smoothing. A mechanism linking pensions to earnings and inflation over several years would, in my view, have been a much more sensible reform.

For advisers, this is another reminder that we can't assume today's State Pension will never change.

This announcement isn't really worth applauding- it is still just under 4yrs away- why wait until then? Given that the next General Election must be held by August 2029, a successive Government could change these parameters still and it could also be forgotten. Retirement planning, in fact any financial planning, is so very important that any changes made need to be certain as people plan for their futures around it. Keep changing the goalposts- whether this is positively or negatively, has a significant impact on consumer outcomes and also hinders overall financial advice.

Burnham has fired the starting gun on the next general election, and he's aimed it squarely at pensioners, presumably assuming they lean Tory or Reform. It's a cynical play. These are people who worked a lifetime, paid their tax and NI, and with so much government waste to go after, they're the target? Scrap the earnings link and you kill the ratchet: above-inflation compounding that lifted the state pension against living costs. A double lock (higher of CPI or 2.5%) means slower real income growth, and over a 25–30-year retirement the income floor sinks noticeably in later life. The gap between pre-retirement earnings and state provision widens. Everyone will have to save more privately, via auto-enrolment or personal contributions, and early to close the shortfall by 66/67. Hardly easy with the cost of doing business crisis, the cost of living and tax at its highest since the Second World War.

For directors who pay themselves a small salary, this changes what the State Pension earned on that salary is worth, not whether they get it. A salary of £6,708 a year still earns a qualifying year. Slower rises than under today's triple lock would mean each of those years buys less pension later. Some clients may need to save more privately, and yes, advisers should raise it now, as a range of outcomes rather than a reason to rush, because it's a pledge that isn't law yet. It's a sensible way to rein in a cost that has swung with inflation and pay, but it's been announced without the detail that matters most. Until the government names the earnings figure it will track and the change is law, forecasting it is harder. Once both happen, a pension meant to hold a steady share of earnings, rather than ratchet on whichever of three measures wins, should get easier to forecast long term.

There is a lot of noise around the triple lock, but for many of the clients we advise this change should make surprisingly little difference to their retirement plans.

We generally plan retirement income around maintaining spending power, so inflation matters far more than what average wages happen to be doing. I would not automatically tell clients they now need to save more privately. The State Pension is one part of the picture alongside personal pensions, investments and other assets.

Removing earnings from the annual calculation should also make the State Pension slightly easier to forecast.

Politically, moving from a triple lock to a double lock may sound like significant action. But if it does not translate into a dramatic change to pensioners' incomes, it is difficult to see how it translates into a dramatic reduction in the cost of the State Pension either. The headlines may ultimately be bigger than the financial impact.