Proposal: Replace the Triple Lock with an “Average-of-Inflation” Up-rating for the State Pension

1. Executive summary

This paper proposes up-rating the State Pension each April by the average of the three UK inflation measures (CPI, CPIH and RPI) for the previous September, rather than by the triple lock (the highest of earnings growth, CPI inflation or 2.5%). Using official outturns for the last five up-ratings (effective April 2020–2024), we estimate the triple lock increased State Pension spending by ~£16.9 billion (cash) relative to an average-of-inflation rule, holding caseload constant for comparability. Looking ahead, applying OBR (March 2025) central forecasts for inflation and earnings, switching to the new rule from the next up-rating would deliver ~£1.3 billion savings in 2025–26, rising to ~£3.2 billion p.a. by 2029–30 (cumulative ~£11 billion over five years), again abstracting from caseload drift. These savings reduce the “ratchet” identified by the OBR while still fully protecting pensions against price rises. Office for Budget Responsibility

2. Current situation

2.1 How the triple lock works

Under the triple lock, the basic and new State Pension are up-rated by the highest of: (i) CPI (September), (ii) average earnings growth (May–July, including bonuses), or (iii) 2.5%. The earnings limb was suspended once in 2022–23, when CPI (3.1%) was used due to pandemic distortions. House of Commons Library

2.2 Recent up-ratings under the triple lock

State Pension spending was around £125 billion in 2023–24 (Great Britain), the largest single component of welfare. Office for Budget Responsibility

3. Proposed policy change

Replace the triple lock with a single rule: uprate the State Pension by the arithmetic mean of CPI, CPIH and RPI for September of the preceding year (the same reference point used in current policy for CPI). This maintains full indexation to prices, smooths volatility, and eliminates the 2.5% floor and earnings ratchet.

4. Modelling approach

  • Window: Five up-ratings effective April 2020 to April 2024 (i.e., using September 2019–2023 inflation prints and the relevant earnings measures).
  • Counterfactual: For each year, compute the “average-of-inflation” rate = average of CPI, CPIH, RPI (September).
  • Path comparison: Start from a common baseline State Pension spend and compound forward under (a) triple lock outturn rates and (b) average-of-inflation rates; take the difference as the uplift due to triple lock (holding caseload constant to isolate indexation effects).
  • Data:

4.1 Actual vs counterfactual up-rating rates (inputs)

Up-rating (effective Apr)Triple lock (outturn)CPI (Sep)CPIH (Sep)RPI (Sep)Average of 3
20203.9%1.7%1.7%~2.4%1.93%
20212.5%0.5%0.7%~1.1%0.77%
20223.1%3.1%2.9%~4.9%3.63%
202310.1%10.1%~9.6%~12.6%10.77%
20248.5%6.7%6.3%~8.9%7.30%

(Sources: ONS CPI/CPIH monthly bulletins; ONS MM23 RPI series; HoC Library; DWP/ONS for 2024 earnings-based uprating.) GOV.UK+8Office for National Statistics+8Office for National Statistics+8

Note: RPI is not a National Statistic, but remains widely used and was explicitly requested as part of the averaging rule.

5. Fiscal modelling results

5.1 Historical five-year estimate (upratings 2020–2024)

Starting from a common baseline and compounding each year:

  • Cumulative extra cost of the triple lock vs average-of-inflation over the five upratings: ~£16.9 billion (cash).
  • Illustrative 2024–25 year-on-year saving if the average-of-inflation rule had applied: ~£4.7 billion (i.e., difference in spend levels by 2024–25 due solely to indexation paths).

These figures are derived by applying the rates above to a stylised State Pension baseline and compounding; they hold caseload constant to isolate indexation. As a sense-check, the model’s 2023–24 outturn under the triple lock is in the same ballpark as the OBR’s ~£125 bn for that year. Office for Budget Responsibility

Why savings are positive despite 2022–2023 having slightly higher average inflation than CPI?
Because the triple lock gave much higher-than-price increases in 2020 (3.9% vs ~1.9%) and 2021 (2.5% vs ~0.8%), creating a higher base that compounds forward, outweighing the two years when average inflation would have been a touch higher.

5.2 Forward projections (central scenario, policy switch at the next uprating)

Assumptions (consistent with OBR March 2025):

  • CPI averages ~3.2% in 2025, then drifts back near 2% from mid-2026. RPI averages ~4.1% in 2025, then ~3% thereafter. CPIH typically runs a little below CPI; we assume CPIH ≈ CPI – 0.4 pp (consistent with recent outturn gaps). Office for Budget Responsibility+2Office for Budget Responsibility+2
  • Earnings growth (AWE, incl. bonuses): ~4.7% May–Jul 2025, easing towards ~2% from 2026. Under triple lock this implies ~4.3–4.7% uprating for April 2025/April 2026 (depending on the decision year) then the 2.5% floor is likely binding in later years as inflation normalises. Office for National Statistics+1

Resulting central savings if the rule changes from the next uprating (illustrative, £bn, cash):

YearEstimated annual saving vs triple lock
2025–26~£1.3 bn
2026–27~£1.7 bn
2027–28~£2.2 bn
2028–29~£2.7 bn
2029–30~£3.2 bn
Total (5 yrs)~£11.0 bn

Mechanically, the first-year saving comes from uprating by the average-of-inflation (~3.4%) instead of earnings (~4.3–4.7%), and in subsequent years the saving grows because the triple lock tends to default to its 2.5% floor while the new rule delivers ~2.2% (given CPI ~2.0, CPIH ~1.6, RPI ~3.0 average). Office for Budget Responsibility+2Office for Budget Responsibility+2

Interpretation: This reform trims the OBR-identified “ratchet” effect of the triple lock—spending still rises with prices but no longer jumps with earnings surges or the 2.5% floor. Office for Budget Responsibility

6. Distributional & policy impacts

Pros

  • Fiscal sustainability: Reduces medium-term spending growth while maintaining full price protection; less volatility for the Exchequer. Office for Budget Responsibility
  • Simplicity and transparency: A single, price-based rule referenced to widely reported ONS indices.
  • Intergenerational fairness: Eases upward drift in State Pension relative to earnings highlighted by the OBR/IFS. Office for Budget Responsibility+1

Cons / risks & mitigations

  • Lower awards in some years vs triple lock. Mitigate via targeted top-ups (e.g., Pension Credit) and retain discretionary one-off payments during price spikes.
  • RPI controversy: RPI is not a National Statistic. The inclusion increases transparency and balances CPI/CPIH; if desired, Parliament could specify a weighted average (e.g., CPI 50%, CPIH 50%) as an alternative.

7. Implementation

  • Primary legislation to replace the triple lock formula in the Social Security Benefits Up-rating framework from the next uprating cycle (decision in Autumn; effective April).
  • Communications: Publish a clear explainer with worked examples of how CPI, CPIH, RPI are averaged, using ONS September releases.
  • Safeguard: Commit to review after 3 years, with a trigger to consider temporary supplements if inflation spikes above (say) 6% again.

8. Conclusion & recommendations

Switching from the triple lock to an average-of-inflation uprating would have saved ~£16.9 bn over the last five upratings and is projected to save ~£11 bn over the next five years, while still keeping pensions protected against price rises. We recommend legislating for the change at the next fiscal event and ring-fencing part of the savings to bolster Pension Credit take-up and winter support for the most vulnerable.

References

  • Department for Work and Pensions (2024) Benefit expenditure and caseload tables. London: DWP. (Accessed 30 September 2025).
  • Department for Work and Pensions (2025) Abstract of DWP benefit rate statistics 2024. London: DWP. Available at: GOV.UK (Accessed 30 September 2025). GOV.UK
  • House of Commons Library (2020) Benefits uprating 2020. London: HoC Library. (Confirms 3.9% SP increase). House of Commons Library
  • House of Commons Library (2023) State Pension triple lock (CBP-7812). London: HoC Library. (Explains rule and 2021/22–2022/23 treatment). House of Commons Library
  • Office for Budget Responsibility (2024) Welfare spending: pensioner benefits. London: OBR. (SP ~£125 bn in 2023–24; triple-lock context). Office for Budget Responsibility
  • Office for Budget Responsibility (2025a) Economic and Fiscal Outlook – March 2025. London: OBR. (Inflation path; earnings assumptions). Office for Budget Responsibility+1
  • Office for Budget Responsibility (2025b) Fiscal risks and sustainability – July 2025. London: OBR. (Triple-lock ratchet analysis). Office for Budget Responsibility
  • Office for National Statistics (2019–2025) Consumer price inflation, UK (monthly bulletins): September 2019, 2020, 2021, 2022, 2023. (CPI & CPIH values used). Office for National Statistics+4Office for National Statistics+4Office for National Statistics+4
  • Office for National Statistics (2025) Average weekly earnings in Great Britain (May–July 2025). London: ONS. (4.7% including bonuses). Office for National Statistics
  • Office for National Statistics (2025) Consumer price inflation time series (MM23): RPI All Items. (RPI Sept values used). Office for National Statistics
  • UK Government (2024) Government reaffirms commitment to backing pensioners with 8.5% rise to State Pension. Press release, 9 April. London: DWP. GOV.UK
  • Government Actuary’s Department (2024) Uprating Report for the National Insurance Fund 2024/25 (details of 2024 rates). London: GAD. GOV.UK

Appendix: Modelling notes (summary)

  • Historical savings (~£16.9 bn) and forward savings are indexation-only comparisons with a constant caseload; real-world outturns will differ with demographics, eligibility, and behavioural effects.
  • Forward numbers use OBR central assumptions (CPI near 2% from mid-2026; nominal AWE easing to ~2%), implying the 2.5% floor regularly binds under the triple lock, whereas the average-of-inflation rule delivers ~2.2% in a low-inflation steady state.