The pensions industry has broadly welcomed Prime Minister Andy Burnham’s decision to replace the state pension triple lock with a new “double lock” from 2030, although experts have warned that the detail of the earnings link, retirement adequacy and wider social care funding will be critical.

Burnham confirmed at the Labour Party Conference that, if Labour wins the next general election, the state pension will rise annually by the higher of inflation or 2.5 per cent from April 2030, while maintaining its value relative to earnings over the longer term.

Adequacy concerns move to the fore

Pensions UK chief policy officer, Zoe Alexander, said the triple lock had played an important role in restoring the value of the state pension but acknowledged that it could not continue indefinitely.

“We're pleased that the state pension will stay ahead of prices but how it’s assessed relative to earnings will be critical,” she noted.

Alexander argued that the announcement strengthened the case for wider automatic enrolment (AE) reform, adding that government should support higher contributions and a more inclusive system to give savers a better chance of achieving their expected retirement outcomes.

People’s Partnership chief executive officer, Patrick Heath-Lay, echoed this point, warning that less generous state pension increases from 2030 would make the case for higher workplace pension contributions “much stronger”.

He stressed that the second Pensions Commission should reflect the change in direction in its final recommendations.

Standard Life Centre for the Future of Retirement head of research analysis and policy, Patrick Thomson, also highlighted the implications for pension adequacy, particularly for Generation X, many of whom are approaching retirement after experiencing declining access to defined benefit (DB) pensions.

He said the move to a double lock needed to be considered alongside decisions on the future state pension age and action to increase AE contributions.

Questions remain over earnings link

A number of commentators welcomed the government’s commitment to retain a longer-term earnings link but said greater clarity was needed over how this would operate.

Quilter retirement specialist, Adam Cole, stated that the commitment to ensure the state pension “holds its value relative to earnings over time” was significant, but warned that “the devil will be in the detail”.

He said it remained unclear whether this would mean maintaining the state pension at a fixed proportion of average or median earnings, smoothing earnings growth over several years, or introducing another mechanism.

Cole added that the framework would need a way for the state pension to catch up if earnings growth ran ahead of inflation or 2.5 per cent for a sustained period.

Aegon head of pensions, Kate Smith, raised similar questions, suggesting the new framework could involve some form of smoothing of earnings increases over several years.

“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.”

Meanwhile, Broadstone head of policy, David Brooks, said the announcement appeared to move the system towards a smoothed earnings link rather than the existing annual ratchet.

He argued this could keep the state pension anchored to average earnings while reducing the impact of one-off earnings spikes on future spending.

Social care trade-off divides opinion

Several commentators described the proposals as a potentially reasonable trade-off between pension uprating and greater protection against care costs.

Gallagher benefits consulting lead, Mark Pemberthy, said the proposal was a “significant change”, but noted that pensioners would retain protection against inflation and receive a minimum annual increase of 2.5 per cent.

“For many pensioners, this will be an acceptable trade-off for greater protection from the costs of care later in life,” he added, noting that reducing uncertainty around care costs could also make retirement planning easier.

The Investing and Saving Alliance (TISA) head of policy: products and long-term savings, Renny Biggins, also supported the direction of travel, arguing that an adjusted lock could protect pensioners from rising living costs while creating a more predictable framework for long-term public spending.

TISA also welcomed the proposal to use the resulting savings to address social care funding, noting that financial wellbeing in later life depended on both retirement income and access to care.

However, AJ Bell head of public policy, Rachel Vahey, questioned whether the savings from triple lock reform would be sufficient to finance a National Care Service.

She warned that moving away from the triple lock would reduce the cost of future state pension increases rather than reverse increases already built into the system.

“There’s a mismatch between one policy, scrapping the triple lock guarantee, saving a little over a long period of time, and another, introducing a social care system, costing a lot immediately,” she said.

Vahey argued that additional funding measures would therefore be required.

Greater pressure on private saving

Howden Employee Benefits head of defined contribution pensions, Mark Futcher, warned that if earnings growth outpaced the new double lock for long periods, workplace and private pensions would need to shoulder more of the burden of retirement provision.

He said pension and social care policy needed to be considered together as part of a coherent long-term strategy, rather than in isolation.

Isio director, Iain McLellan, similarly warned that a less generous state pension over the longer term could mean some members need to save more privately.

He suggested that schemes should consider how the reforms affect projected retirement incomes and ensure members understand the interaction between state and workplace pensions.

Meanwhile, My Pension Expert policy director, Lily Megson-Harvey, said ending the triple lock was a significant change for people who had spent years making retirement decisions around the existing system.

She argued that the priority now should be to give pensioners and savers enough clarity and notice to adapt, particularly regarding how the earnings link will operate.

Hymans Robertson head of pensions policy innovation, Calum Cooper, said the announcement had opened the “right debate”, but stressed that reform should not become a simple cost-cutting exercise.

“We need a clear adequacy target, protection against inflation and a credible long-term link to earnings,” he added.

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