State Pensions triple lock £1.3 billion hike, the impact of inflation and future sustainability

As rising inflation means the cost of the pensions triple lock seems set to soar, Katy Ward looks at the long-term feasibility of the policy.

The Government is facing a £1.3 billion State Pension bill thanks to the triple lock and rising inflation, new research from investment firm Quilter has found.

Under current rules, annual payments rise in line with inflation, average earnings growth or by 2.5%, whichever is higher.

And stickily high inflation certainly hasn’t helped the Government’s bill.

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The impact of high inflation

The Bank of England has now revised its inflation forecast for 2025, predicting a peak of 3.7% this year –nearly a full percentage point higher than its previous estimate of 2.75%.

This news means that the State Pension will likely receive a larger-than-anticipated increase in April 2026.

This prospect puts more strain on the Chancellor, who is already under mounting pressure and in a desperate position to ease public spending.

If inflation does reach 3.7% in the 2026/27 tax year, State Pension costs will likely hit £148.4 billion.

This figure far exceeds the previously estimated sum of £147.1 billion, based on the earlier forecast of 2.75% inflation.

Overall, this discrepancy represents an extra cost to the Treasury of £1.3 billion.

Unsustainable by 2035?

Demographic changes, including an ageing population and declining health, are expected to place further strain on the public purse.

During recent decades, pension spending has skyrocketed, increasing from 2% of GDP in the early 1950s to more than 7% in 2025.

Think tank the Adam Smith Institute has warned that the current State Pension system is at risk of becoming "fiscally unsustainable" by 2035.

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Pension costs exceeding National Insurance intake

At this point, the financial burden of pensions will likely exceed the revenue generated from National Insurance contributions.

At present, retirees receiving the "full" New State Pension receive £221.20 per week, equating to £11,502 per year.

In April, this will increase to £230.25 per week or £11,976 per year.

If the anticipated 3.7% rise occurs, annual pension payments would reach £12,419 for the following year – bringing many older people dangerously close to the Personal Allowance Income Tax threshold of £12,570.

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What does this mean for Income Tax?

The Government's decision to freeze the Personal Allowance threshold until 2027/28, despite increasing wages and inflation, will result in huge numbers of retirees pushed into the Income Tax bracket.

According to analysis from former Pensions Minister Steve Webb, approximately 10 million retirees will be dragged into paying the tax by 2032.

Research from The Telegraph has also found that roughly 250,000 pensioners are already paying the tax based solely on their State Pension income.

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An unsustainable policy?

According to Ian Futcher from Quilter, the revised inflation forecast poses "serious ramifications" for the Treasury.

“The extra £1.3 billion cost to the taxpayer highlights the precarious nature of the Government’s fiscal position, and frankly how the triple lock can quickly become unsustainable”, he said.

“While it is an undeniably popular policy, with an ageing population it is becoming difficult to afford, and there may come a point where difficult decisions need to be made about it.”

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Have your say

What do you think about the triple lock? Are you a fan or do you believe it is simply implausible in the current climate?

We’d love to hear your thoughts in the comments below.