PENSIONSANDSAVINGS.COM

1 August 2016

My comments about the future of state pension uprating have certainly caused widespread debate. Unfortunately, they have also been grossly misrepresented.  I am sad about this because it has caused unnecessary upset to many pensioners and that would never be my intention.

People don’t expect someone to comment on pensions policy with a long-term perspective: I don’t know if the mis-reporting has been because of a desire to have catchy, controversial headlines, but I think it is partly perhaps because people aren’t used to someone talking about pensions policy from a long-term perspective and assume anyone proposing policies has to be thinking of the short-term.  That is not my approach here.

I have always supported keeping triple lock till 2020:  Anyway, my clear position is that I have always supported and continue support keeping the commitment to the Triple Lock on basic and new state pension until 2020.  This is all that the Government has committed itself too now as well.

I was asked to comment on whether I thought triple lock might be removed before 2020:  The reason why I wrote about this and commented on it to the press was because I was called last week by a number of journalists who said they understood that Theresa May’s chief of staff had said he believed pensioners had been protected too well, relative to other groups and asking me if I thought the triple lock and pensioner benefits might be under threat.  My response was that I hope not and that the triple lock should be kept till 2020, because it was a clear commitment and we do need to protect pensioners.  However, I said that beyond 2020 there is a question mark.

Law only requires earnings uprating beyond 2020 – I suggested a ‘double lock’ instead:  Currently, the law only requires state pension after 2020 to be increased in line with earnings.  As Pensions Minister I had been thinking about state pension policy beyond 2020 and suggested to colleagues that perhaps the Government should consider committing to a double lock from 2020 onwards.

I don’t do ‘secret’ memos!:  It is simply not the case that this was part of any ‘secret memo’ as some headlines have wrongly suggested.  I may have written my ideas in one of the regular weekly notes I sent to the Secretary of State about pension policy thoughts or developments, which were read openly by officials.  I also had conversations with colleagues in Treasury and Number 10.  Nothing secret about it at all – I don’t do ‘secret memos’ – and am happy to discuss my views openly.

Double lock protects pensions relative to the economy and society, better than just earnings:  I felt that a double lock could be better than the current legally required uprating, and it would guarantee the highest increase for pensions of either prices or earnings.  That means pensions would not fall behind the cost of living or the rise in average earnings, and would be protected relative the rest of the economy and society.  This would give pensioners better protection than other groups, but it would not ‘bake in’ the 2.5% figure that is not related to any economic or societal yardstick.  The long-term expenditure state pension expenditure forecasts assume the triple lock stays in place even though the legal requirement from 2020 is only for earnings uprating.

Nothing to stop a future Government giving more than 2.5% or more year by year:  If pensioners have a double lock – best of rises in earnings or prices, there is still nothing to stop a Government, year by year, paying more than this, whether it is 2.5% or a different amount, but because that is a discretionary annual figure it would not need to be baked into the long-term finances.

Helps reduce long-term forecast cost of state pension in national accounts:  By allowing this discretion, while locking in double protection, the cost of state pensions in the long-term would be reported as lower than otherwise and this could also help alleviate some of the pressure for continued rises in state pension age.

Could reduce need to keep increasing state pension age so much:  I feel that raising the state pension age has been a really difficult policy and has significant unfairnesses that have been underplayed or under-recognised by policymakers.  It is clear that many women were simply not told that their state pension age would be rising from age 60 after the 1995 changes and then they had a second rise imposed as well.  The upshot is that some women are facing a sudden six year increase in their pension age and this has caused real hardship.  Even with the increase in state pension age for men, from age 65 to 66, I am sure many men still do not know they won’t get their state pension when they reach age 65.  This rise starts in two years’ time, yet the Government has not had a widespread communication campaign to publicise this.  I tried to get this done, but politicians consider this is ‘bad news’ so have been reluctant to pay money for a campaign, yet I believe it is absolutely vital that we have a national campaign to warn everyone that by late 2020 nobody aged 65 will be able to get their state pension.  Not only is this a problem because people may be left with little or no income, but it is also unfair in many ways.  The state pension age has been increasing because of rises in average life expectancy, however there are huge variations in life expectancy across the country.  Those who live in certain regions, people with heavy manual labour occupations, dangerous jobs or on low pay usually have lower life expectancy than the average, so it seems unfair to keep raising their state pension age just because the ‘average person’ is living longer.  By reducing the long-term forecast cost of state pension expenditure, there would be room to slow any future rises in state pension age and, because I am thinking of the long-term and social justice, it seems to me that suggesting the double lock from 2020 could achieve a broader aim.

2.5% is an arbitrary number:  The triple lock itself is really a political construct.  The 2.5% makes no sense.  If Government believes the state pension should be brought up to a higher level, then it can consider each year how much extra to increase it beyond prices or earnings, but without committing to an arbitrary number.

Triple lock has been used to cover up failures in other pension policy areas:  Too often, when people came to me with problems about their pensions, the official reply was that the Government had the triple lock so it was unquestionably looking after pensioners properly.  But of course this triple lock only applies to parts of the state pension, not all of it.  Pension credit is only linked to earnings (although the Government has in fact increased it by more than earnings in most years recently).  State Second Pension, Earnings Related State Pension, disability, war veterans and widows benefits, carers’ benefits are all only linked to prices, so they were frozen last year and had no rises at all.  Many other working age benefits are frozen until 2020.

We must protect pensioners:  My position is that we must protect pensioner incomes, that the triple lock has fulfilled a useful purpose in boosting the level of the state pension and that a double lock for the long-term would offer pensioners good protection, better than earnings alone.  The double lock does not preclude higher rises if the Government of the day wants to do that in any particular future year but those rises can be decided at the time, rather than committing to an arbitrary number that has no relation to the economy or society.  A double lock would also help take some pressure off the need to increase the state pension age as much as might otherwise be the case by assuming the triple lock stays in place in perpetuity.