State pensions will rise with prices or 2.5% from April 2030 and keep pace with earnings "over time", Prime Minister Andy Burnham has announced. He said this change will generate "significant savings which we'll use to build a National Care Service", with Labour putting savings at £50bn a year by 2050.

Speaking at the Labour Party Conference in Liverpool on Tuesday, the new PM outlined his vision for a National Care Service "with no charges paid out of your basic state pension".  

He then promised to keep the triple lock in place for this parliament as stated in the 2024 election manifesto, taking the state pension to a record high of 30% of average earnings. 

"From there, in April 2030, we will adjust it. The state pension will continue to rise every year at least by prices or 2.5%, and it will hold its value relative to earnings over time, so that pensioners will always share in the rising prosperity of the nation," he said.

Labour added the adjusted mechanism means that in any given year, the state pension will not just go up by at least inflation or 2.5%, but by more than that “as needed” to retain the value relative to average earnings.  

 

The new earnings link will mean the state pension can never fall below its level as a share of average earnings but, mallowstreet understands, will not eclipse the wage growth of working people.

 

Burnham argued that the change will generate "significant savings, which we will use to build up our National Care Service". 

Labour has put the savings at £15bn a year by the end of the 2030s, rising to £50bn a year by 2050.  

Burnham is seeking to sweeten the deal by promising that low-income pensioners "won't be dragged into paying tax in this parliament".  

A government spokesperson said: “This settlement is a better deal for pensioners and their families. We are ensuring that the state pension system is built to last for the pensioners of today and tomorrow. We are committed to the triple lock for this rest of this parliament, and the adjusted triple lock will build on the gains the policy has made for pensioners in raising the state pension." 

 

The spokesperson added: "This means the state pension will always increase by at least the highest of 2.5%, CPI inflation or a new earnings link – so that the state pension will never fall below its record high level when we adjust the current triple lock.” 

 

The new policy, which will likely be led by work and pensions secretary Pat McFadden, reportedly has the backing of Angela Rayner. However, Sharon Graham, general secretary of union Unite said the PM should not be “pulling a lever” on the pension triple lock. 

“Going to the well of pensioners before going for the super rich is wrong,” she said. 

The move to a smoothed triple lock has been welcomed by those who have been arguing for a change to the way the state pension is increased as costs are projected to become unsustainable. 

The Institute for Fiscal Studies previously recommended a smoothed earnings link modelled on the Australian system, whereby the state pension would target a specified share of median earnings but temporarily resort to an inflation link in years when inflation outstrips earnings, until the target has been reached again. 

Deputy director Jonathan Cribb said the proposed new mechanism is better than no change: “Better reforms were available, but this one is a big improvement." 

However, Cribb warned the 2030 double lock will not be the answer to funding universal social care. The savings the policy will generate are difficult to estimate because the unreformed triple lock was highly unpredictable, he said. 

"Savings are likely to be relatively small in the first few years but rise substantially over time. We should not expect this reform to save enough that it could fund universal social care in the next parliament," he added. 

If the new policy had been in place since 2011, state pension expenditure this year would be £9bn lower than it is today, more than halving the £16bn annual cost in 2026–27 of having kept the triple lock, according to Cribb.

He added that the minimum 2.5% increase each year remains arbitrary and potentially costly.

"Although it no longer permanently ratchets up expenditure, it will still lead to some years – potentially many years – of higher state pension expenditure, most likely in years of low inflation, compared to if this part of the system had been removed," he warned.   

Pension fund body Pensions UK said the triple lock cannot continue but wants clarity on any impact on pensions adequacy.

“We're pleased that the state pension will stay ahead of prices but how it’s assessed relative to earnings will be critical," said said Zoe Alexander, chief policy officer at Pensions UK. "We would like to see an independent body assess overall pensions adequacy on a regular basis to ensure living standards are safeguarded as part of an overall package of reform."

Burnham's state pension announcement has been welcomed by Kate Smith, head of pensions at Aegon, who said it will be important to remember that nothing changes for pensioners now.
 

“Increases in earnings will still have a role to play, so pensioners are able to share in the relative prosperity and won’t lose out if UK earnings significantly outperform price increases," she said. 

 

"However, it’s unclear how this will work in practice.  It could possibly involve an element of smoothing of earnings increases over a few years relative to the increases in prices and the 2.5% increase. We await the detail,” she added. 

The news about the triple lock means while it remains for now, the thinking about the state pension will move forward over the next few years, said Calum Cooper, head of pensions policy innovation at consultancy Hymans Robertson. 

"The most important question is not, however, what happens in this parliament, but what the long-term destination should be. Looking ahead, it sounds like the future vision will move to a more stable and sustainable ‘double lock’ mechanism, but we await more details on how this will work in reality," he said.

  

Cooper pointed out that the state pension provides around 90% of the Pensions UK minimum retirement standards, "needed for the bare minimum of what is deemed a good retirement", claiming there are "vast swathes of pensioner poverty" in the UK. State pensioners are the least likely age group to experience poverty in the UK today, while children and people just below state pension age are most at risk.

  

“The Prime Minister has opened the right debate. The triple lock cannot sensibly continue forever, but reform should not be a simple cost-cutting exercise. We need a clear adequacy target, protection against inflation and a credible long-term link to earnings.” 

  

Cooper said keeping low-income pensioners out of tax was "a sensible policy" as long as it is genuinely focused on people with the lowest incomes, rather than becoming a broad tax advantage based on age.