The Pensions Triple Lock is set to be axed from 2030 and replaced with a double lock, Prime Minister Andy Burnham told the Labour Party annual conference today.
The shock announcement from the Prime Minister had been rumoured as an option in recent weeks but with few expecting an announcement today.
Mr Burnham told the conference that the Triple Lock would be replaced with an annual double lock mechanism to ensure the State Pension keeps up with prices.
An annual double lock will mean prices going by the highest of prices or 2.5%.
The third element of the current Triple Lock, increasing pensions in line with wages, will be dropped in its current form. This element has often meant that the State Pension has increased significantly faster than prices. Instead, the wages link will be axed on an annual basis but may be factored in on a long term basis, Mr Burnham said.
Mr Burnham said the move, which would take place after the next election, would save the government billions and help fund a new national care service.
He told the conference that the dropping of the Triple Lock commitment would result in "significant savings" and the money saved could be used to help fund the national care service.
The next general election must take place by August 2029 but can be held before then.
Industry reaction was broadly neutral, with many commentators stressing the need for reform but some concerned about what the details will mean in practice.
Kate Smith, head of pensions at Aegon, said: "We welcome the Prime Minister's decision to adjust the state pension Triple Lock, with a double lock from 2030.
"Thereafter the State Pension will be increased by at least the increase in prices, or 2.5%, but holding its value relative to earnings. Aegon has long called for a serious conversation about how the state pension can remain affordable, sustainable, and fair across generations, so we’re pleased to see The Prime Minister leading the way and giving certainty for future state pension increases."
Maike Currie, VP Personal Finance at pension consolidator PensionBee, said: “The Triple Lock will become a double lock. From April 2030, the earnings element will disappear, leaving the State Pension to rise by the higher of prices or 2.5%.
“Burnham says the State Pension will retain its value relative to earnings over the longer term, but without official earnings figures in the annual uprating formula, we need to understand how that commitment will work in practice. With inflation already above the Bank of England’s 2% target and vulnerable to external shocks such as higher energy and oil prices, an inflation-linked double lock could still prove expensive if no cap or control mechanism is in place."