The triple lock alternatives used in other countries, and how they compare to the UK

Earlier this week, Andy Burnham announced that the triple lock would end in its current form in April 2030 to help pay for free at the point of use social care. Since its introduction in 2011, the state pension rises each year in line with the highest of earnings, inflation or 2.5 per cent. If Labour win the next election, a new “adjusted” lock would see the state pension rise each year by at least inflation or 2.5 per cent. Burnham also said it would “hold its value relative to earnings over time”. Shorts Experts say the triple lock is relatively unique when compared to other countries. “Across most OECD countries, state pension increases are typically linked to a single measure, such as inflation or average earnings,” says John Wilson, head of pensions technical, at consultancy Aptia. “Some governments also take a broader range of factors into account, including public finances and economic conditions. By comparison, the UK’s triple lock provides a more comprehensive and generally more generous approach to protecting pension incomes.” The i Paper took a look at some of the systems used in other countries, and how they compare to the UK. Spain – inflation-linked The Spanish system is not directly comparable to the UK’s. Its main state pension is a contributory system, where the amount you get depends on previous contribution earnings and the number of years for which someone has contributed. Research by Almond Financial suggests the average amount paid out is equivalent to £1,341.40 per month, making it one of the more generous in Europe. It uprates its pension annually by the average of the 12 year-on-year Consumer Prices Index (CPI) inflation rates during the previous year – meaning it was increased by 2.7 per cent this year, compared to a 4.8 per cent increase seen in the UK. This differs from how the UK uses inflation. With the triple lock, if inflation is the relevant metric, it is September’s CPI figure alone that is used. Spain also has a non-contributory retirement pension similar to the UK’s pension credit, for people with little work history or low income. These are often increased by larger amounts. Australia – smoothed earnings link Australia has compulsory workplace pension saving paid by employers. Employers have a mandatory 12 per cent contribution paid on top of an employee’s wages, referred to as superannuation or “super”. But it also has a means-tested age pension which runs alongside this. It’s targeted towards those with low superannuation balances to ensure a minimum retirement income. This is increased each year by something known as a “smoothed earnings link”, similar to what Burnham has proposed in the UK. It’s been supported by the Institute for Fiscal Studies (IFS), with its director Helen Miller saying of the UK triple lock: “For those who want protection against inflation – better to use an Australian style ‘smoothed earnings link’ – protects pensioner incomes when inflation is bigger than average earnings growth, but without the ratchet effect.” It is reviewed twice a year, going up in March and September by the greatest of inflation or the Pensioner and Beneficiary Living Cost Index (PBLCI), which is a measure of pensioner spending. The government then ensures that it keeps up with a fixed portion of Male Total Average Weekly Earnings – to make sure the pension does not fall behind wages. The full amount is $1,237.70 per fortnight (around £649) for a single person. France – inflation-linked but excluding tobacco prices The French have a basic state pension called retraite de base. The calculation for how much you are awarded varies, but the formula for this is quite complex. Essentially, you get a maximum of half of the average of your income from your 25 best earning years, within an upper limit of €48,060 (£40,918). This can be adjusted depending on the number of years you have worked. The minimum age at which you can access your state pension is rising from 62 to 64 over the next four years. By law, the basic pension is revalued on 1 January according to the 12-month average CPI inflation excluding tobacco, in the previous year. If the calculation would produce a cut – because inflation is negative, then it is kept the same. On top of this, however, there is a mandatory supplementary pension scheme for private-sector employees in France called the Agirc-Arrco. You pay in throughout your career, and these are converted into points that then give you income in retirement. A typical payout from both is around €15,000 (£1,296.46) per month, according to Almond Financial research. Canada – inflation-linked four times a year Canada also has two separate state pensions in effect: an Old Age Security (OAS) and a Canada Pension Plan (CPP). The OAS is $762.50 (£405) per month for ages 65 to 74 and $838.75 (£633.65) per month for ages 75 and over. It is means-tested, with those earning over $93,454 (around £50,000) having some of it clawed back. It goes up four times a year, in January, April, July and October, in line with the average inflation rate in the previous three-month period. Canada’s second pillar, the CPP, is earnings-related. The maximum someone can receive is $1,507.65 (£1,138.99) per month but the average is $858 (£648). This element is increased every year in January, based on the average of the previous 12 months’ inflation. Can we really compare the UK state pension to other countries? The triple lock was initially introduced to help the state pension increase as a share of average earnings. Since a link with earnings was broken in the 1980s, the state pension’s real value stagnated in real terms, falling to 16 per cent of average earnings. The triple lock was intended to reverse this trend. More broadly, however, experts say that generally, comparisons between the state pensions in other countries and in the UK often miss the full context. “When people compare pensions between countries, they often isolate the benefits provided directly by the state, usually saying that what UK citizens receive is inferior to comparable nations. But any fair comparison needs to consider the full picture, including how much tax people pay, the structure of contributions, tax relief and mechanisms such as automatic enrolment,” says Tom Selby, director of public policy at AJ Bell. Many other countries often have state pensions that provide different figures depending on lifetime earnings, whereas the UK has a largely flat rate for people with the same number of years paying national insurance, regardless of what they earned during their working lives. “The state pension is clearly a crucial part of that picture but focusing entirely on a single part of the system can result in misleading conclusions,” Selby adds.