The true cost of the triple lock: £115,000 on your annuity

30 May 2017

Research from Fidelity International into the cost of inflation protection on private pension savings has highlighted the true cost of the triple lock on the state pension.


The triple lock, which was launched in 2010 by the Coalition government, guarantees that the state pension will rise by the higher of inflation, earnings growth or 2.5%. 


However, its future now hangs in the balance with only Labour and the Liberal Democrats guaranteeing to preserve it throughout the next Parliament. After 2020 the Conservatives plan to introduce a new double lock with increases to the state pension only being linked to earnings and inflation.



According to the analysis from Fidelity International, purchasing just one part of the triple lock could cost private savers in the region of £115,000.


To carry out its analysis, Fidelity generated annuity quotes that would provide an income equivalent to the basic state pension that either rose by 2.5% a year or in line with the retail prices index measure of inflation.


To purchase an income equivalent to the state pension at outset – so £159.55 a week or £8,319 a year – would cost a man aged 66 £161,850. However, this is a level rate and would not increase over the years.


To add in RPI escalation it would cost £276,900 – a further £115,050. Escalation at 2.5% was not quite so expensive, costing £230,650, costing savers an additional £68,800.



‘Inflation protection has always been expensive’


Commenting on the research, Richard Parkin, head of pensions policy at Fidelity says: “One can’t buy an annuity with triple-lock increases. But just taking one element of its guarantee shows its value. Providing inflation protection has always been expensive but is particularly so in today’s climate of low interest rates and rising inflation.


“These figures show why there is so much political attention on state pension increases. While they don’t show the cost to government, they do emphasise that while the state pension seems like a small amount of money, maintaining its purchasing power over time is a huge expense.


“Guaranteeing it will go up by at least 2.5% even when inflation is low is a significant financial commitment and one the Conservatives have decided we can no longer afford.”






In reply to by anonymous_stub (not verified)

Political attention to tax payers money of what is and is not affordable never includes MPs does it.Does anybody remember a few years ago they awarded themselves a 25% pension rise from tax payers money or the last round of pay increases was 11% for them and near nothing for anybody else.Of course pension providers of annuities don't like comparisons to their poor returns for a lifetime of savers money, to get a living annuity from them you have to first hand over a sum so large you don't really need them anyway.

In reply to by anonymous_stub (not verified)

This isn't a very helpful statistic. In fact it is meaningless. Annuities are based on the yields from fixed interest government stocks which are currently depressed by very low central bank rates and the effects of quantitative easing. It is anyone's guess when rates will rise and QE ends, but when that happens this "cost" will tumble rapidly.

In reply to by anonymous_stub (not verified)

The only reason Fidelity are saying this is because they add on an overhead to ensure their profits.A publicly funded pension does not need any such overhead.Therefore, it is incorrect to say the triple lock is costing everyone an additional £115,000.Presumably, the real reason this article has been posted here is to act as click-bait.

Add new comment