Autumn Budget 2026: Will the government end the pension triple lock?

Key points

• A sharp rise in bond yields raises debt servicing costs and erodes the Chancellor's fiscal headroom, perhaps halving it

• The UK labour market remains weak with latest data pointing to a narrowing taxable base and private sector wage growth stalling, but the State Pension is set to rise 3.9% to above £13,000 in April

• Could the Overton Window be open for the government to end the pension triple lock?

Declining payrolls, spluttering wage growth and a sharp jump in the State Pension; could the Budget this year see the government take a more drastic approach to rewiring the nation's finances?

Wage growth data contained in the September ONS labour market survey means the State Pension will rise above £13,000, surpassing the income tax threshold, which adds to the fiscal headache for the Chancellor, John Healey.

Average earnings rose 3.9%, meaning under the triple lock rules the state pension will rise by at least this amount, unless inflation unexpectedly shoots to 4% or more. The triple lock mechanism, put in place in 2011, means that the state pension increases by whichever is highest of headline CPI inflation, average earnings or 2.5%. The Institute for Fiscal Studies believes state pension is £16bn higher annually than it would have been without it.

The rise in pension spending comes ahead of the Budget and a worrisome time for the UK's fiscal outlook as soaring energy prices have sent global bond yields to multi-year and multi-decade highs. UK gilts have been especially vulnerable to this pressure because of the relatively high energy prices we pay and our exposure to the European gas price. This has sent debt servicing higher, eroding the Chancellor's fiscal headroom. The £24bn headroom left by Rachel Reeves after her March statement may have halved. 

The boost to the pension from April will refocus attention on an increasingly important focus of debate ahead of the Budget: should the UK keep the triple lock? 

Labour market weakness underlines tricky position

While wage growth shows a healthy clip, beneath the headline are some worrying figures.

Although the unemployment rate held steady at 4.9%, the number of payrolled employees decreased by 145,000, or 0.5%, in the year to August. At the same time the number of vacancies plunged to the lowest since 2014, declining to 702,000 in the three months to August, down 1.1% from the previous three months.

Notably, the average private pay grew at just 2.9%, while public sector pay growth was 6.3%, due to the timing of NHS pay awards. In effect, workers in private sector, non-government jobs are seeing their pay decline relative to inflation whilst pensioners are getting an uplift.

This poses a question for the Chancellor: where do taxes come from? And where do they go? An increasingly narrow taxable payroll base is bearing an increasingly heavy burden. Given the precarious fiscal position and the continued rise in gilt yields, the obvious solution for some is to sacrifice the sacred cow that is the triple lock. 

Why would the Chancellor end the triple lock?

Pension spending is becoming a considerable burden at a time when the nation's finances are stretched in all directions. Crisis upon crisis has left the UK with little room for manoeuvre. The triple lock is a bind – it locks in a higher rate of spending for as long as it remains in place.

If the Chancellor is serious about getting a grip on welfare spending, then the triple lock is the best place to start. Pensions make up 45% of the welfare bill. According to the IFS, the UK now spends 4.9% of GDP on state pension spending, up from 4.3% in 2010 and 3.6% 20 years ago in 2006–07.  IFS says it will add £50bn to the welfare bill by 2050 if it is retained. About 11% of all government spending today is the state pension.

The policy contains a permanent upwards ratchet – the extra amount it increases by over the rate of inflation may be small a lot of time, it's baked in; any increase comes on top of past increases. It is also a pro-cyclical policy, so when the fiscal outlook is risky due to a surge in bond yields, it acts to make this worse. 

Why would he not?

It's politically dangerous for Labour. It's become a sacred cow that no party dare touch. Pensioners are a strong voting bloc. Attempts to cut the winter fuel allowance by Reeves was met with fury and marked the beginning of the end for any serious attempt by the last regime at paring welfare spending.

Many pensioners are also likely to be subject to potential changes to property taxes and inheritance tax.

There are also strong arguments around pensioner poverty with many relying on the relatively modest annual sum to get by. These are not questions easily swept aside.

What could happen?

Given the fiscal outlook and the macroeconomic uncertainty from the US-Iran war, combined with higher bond yields, there is perhaps a greater chance than at any previous Budget for the Chancellor to act.

Healey has committed to his predecessor's fiscal rules and not raising any of the three main taxes. This limits the number of levers he has to pull to raise revenue. 

Getting astride welfare remains important to the government and pensions are the biggest outgoing.

While it will be politically challenging to end the lock, its days appear numbered. The question is really a matter of timing, and whilst it's not my base case that Labour ends the triple lock this year, I put the chances around the 30% mark.

Left-leaning think tank the Resolution Foundation points out that it is "fiscally unsustainable" and says it cannot keep rising forever above earnings. It suggests a "smoothed earnings link" instead. 

Incidentally, the pensions minister is Torsten Bell, who was previously the chief executive of the Resolution Foundation.

If the government were to end the triple lock it would deliver a credibility premium for gilts. The signalling function would be as important, if not more so, than the actual policy shift and bond markets would respond favourably.

Practical considerations if you are a pensioner or approaching retirement

• Work out the actual income gap. Compare essential annual spending with guaranteed income from the State Pension, defined-benefit pensions and annuities. A smaller annual increase may be manageable without changing the investment portfolio.

• Check all available entitlements. Pension Credit, Council Tax Reduction, housing support and disability-related benefits can be more valuable than they initially appear. Pension Credit may also unlock other assistance. Eligibility can be checked through the government’s Pension Credit calculator.

• Keep a suitable cash reserve. Money needed for regular spending or emergencies should not generally depend on selling investments after a market fall. The appropriate reserve varies, but many retirees hold one or more years of planned withdrawals in cash or short-term deposits.

• Match investments to when the money will be needed. Near-term spending may belong in cash or short-dated, high-quality bonds. Money unlikely to be required for several years can potentially remain invested in a diversified portfolio containing equities and bonds.

• Do not chase unusually high income. A high dividend or bond yield often signals higher risk. Focusing entirely on income can produce a concentrated portfolio and may be less effective than drawing a sustainable amount from a diversified mix of income and capital growth.

• Retain some protection against inflation. Retirement may last 20 or 30 years. Holding everything in cash reduces short-term volatility but creates a long-term risk that inflation steadily erodes purchasing power. Diversified equities and, in some circumstances, inflation-linked bonds may help, although their prices can fall.

• Review withdrawal levels after difficult markets. People using pension drawdown face “sequence risk”: large withdrawals during an early market decline can permanently damage the portfolio. Temporarily reducing discretionary withdrawals may be preferable to selling substantially more assets at depressed prices.

• Consider securing essential expenditure. Someone worried about maintaining a minimum income could investigate whether an annuity is appropriate for part of their pension. This exchanges access to capital for guaranteed income and is not suitable for everyone, so shopping around and taking advice can be important.

• Use tax allowances sensibly. ISAs can provide tax-free income and withdrawals, while pension withdrawals may be taxable. The best order in which to use cash, ISAs and pensions depends on income, inheritance plans and benefit eligibility; withdrawing everything from one account without checking the tax consequences can be costly.

• Check investment charges. A difference of even 0.5–1 percentage point in annual fees matters when a portfolio is funding a long retirement. Review platform, fund and adviser charges alongside the service received.