- Dropping the triple lock earnings linking is a triple broken promise to pensioners.
- The legislation to abandon earnings protection for poorest pensioners is unnecessary and based on a false premise as scare stories of an 8% pension increase are wrong.
- I will warn against setting a dangerous precedent in today’s Lords debate and explain how to save over £3billion without jeopardising poorest pensioners, mostly women.
- The current legislation allows State Pensions and Pension Credit uprating to use ONS adjusted earnings figure around 3.5%, similar to the cpi which will be used anyway.
- UK State Pension is well below other countries relative to earnings, still lower than in 1979 when Mrs. Thatcher removed the original double lock.
I will speak in the House of Lords today, to oppose the Government’s plans to drop the earnings link in the triple lock for pensioner benefits. I will explain why this is a really unnecessary policy decision, which breaks a solemn manifesto commitment, is a triple broken promise that betrays the poorest pensioners and, although said to be temporary, is not even necessary.
Based on a false premise: The rationale that, without changing the law, the Chancellor would have to increase pensions by over 8%, because of the pandemic distortion of the official earnings statistics, is not actually true. I agree that an 8% rise would be difficult to accept, however the ONS adjustment to the National Average Earnings figure, which is around 3.5% could be used. The legislation does not specify use of one particular measure, the DWP could simply opt for this adjusted figure, to reflect the exceptional effects on earnings last year.
Government insists this is only ‘temporary’, but it sets a dangerous precedent: A Chancellor, who does not like the current year’s uprating number, could find it easier to abandon pensioner protection in future. With sharply rising inflation, particularly for the basic essentials of life such as food, drink and fuel, dropping protection for the poorest pensioners, mostly elderly women, jeopardises recent progress in alleviating later life poverty.
Triple lock earnings link is the most important part, it is 2.5% that is anomalous: The triple lock is not the best policy for protecting protect pensioners any more, particularly as the new State Pension is far better protected than the old Basic State Pension. However, it is the 2.5% that has no economic or social justification. It was applied last year, in line with the Manifesto Commitment, but is now being used as a justification for this new legislation to remove earnings linking.
UK State Pension is the lowest in the OECD and still below 1979 levels: It relies on pensioners having additional private pension income to supplement it, and uses means-tested Pension Credit to help the poorest avoid poverty. Current legislation requires Pension Credit (which was never triple-locked!) to be uprated by at least average earnings. But Government proposes removing the earnings protection for Pension Credit too. Basic State Pension (£137.60 a week), full new State Pension (£179.60 a week) and Pension Credit minimum guarantee for poorest pensioners (£177.10 pw) are below the 1979 value relative to average earnings!
Millions of pensioners have little or no other income: The majority of these are older women who were disadvantaged in private pensions during their working years, and many rely totally on their state pension. For years, the earnings link has been a fundamental part of pensioner protection policy and it should not be abandoned in my view.
The most galling part of this legislation is that it is just not necessary and is based on a false premise: The reality of the legislation that we are being asked to tear up, even if only for one year, is that, because the legislation does not specify a specific earnings uprating index, the Secretary of State has leeway to use a relevant measure, such as the ONS adjusted estimates around 3.5%. Of course, the pandemic has distorted the normal earnings measure and over 8% rises may be hard to justify, after the 2.5% rise last year when earnings fell. However, the ONS estimated adjusted earnings reflecting the exceptional pandemic impacts give a range around 3.5%. This figure is near the expected cpi number that will have to be used anyway under the Bill’s proposed ‘double lock’ of the highest of cpi or 2.5%.
Cpi figures next week are expected to be over 3%, similar to adjusted earnings!:
Official cpi figures, to be released next week, will be used for pensions uprating and recent price rises mean it is expected to be between 3 and 3.5%. So the claim that this legislation will save £5billion in State Pension costs does not stand up to scrutiny. Using the adjusted earnings figure, would still save over £3billion relative to the unadjusted number, without this legislation. It could be amended to make explicit the current discretion to use an adjusted earnings inflation index rather than just the National Average Earnings measure.
Assuming cpi figure is over 3% as expected, this legislation would bring little or no cost savings: I will argue that we should wait for the new cpi figure and then, at Committee Stage of the Bill, the Lords should reassess the dangers of abandoning the vital earnings link for state pensions. Is setting such a damaging precedent really worth breaking solemn Manifesto and legal commitments to our poorest pensioners.
Triple break of pensioner promises: Dropping earnings protection is a trio of broken promises to pensioners. This legislation could pave the way for future Governments to use even the poorest pensioners as a cost-cutting tool when needed. This is not the way to show concern for the poorest pensioners – especially against a background of rising prices for basics stated political aims to increase national average earnings sharply!
- Breaks the legal commitment, in place for years, to uprate Pension Credit at least by earnings.
- Breaks the legal commitment to increase Basic State Pension and New State Pension at least by average earnings.
- Breaks political promise of the triple lock.
But we could still honour all these promises, without the risks that this legislation entails. These are my three proposals:
- Keep the earnings protection for pensions in primary legislation, especially for Pension Credit.
- Introduce explicit wording to clarify that the measure of average earnings inflation can reflect anomalous years.
- Call for a formal comprehensive review of pensioner benefits and uprating to assess the triple lock, including the retention of a minimum 2.5% in the long term, rolling tax-free benefits such as Winter Fuel Payments into a higher state pension that would be taxable, and how to avoid constant new primary legislation.
Pensioners have been down this road before and it does not end well: In 1979, Mrs. Thatcher removed the earnings link that had been part of the 1970s ‘double lock’ (best of price or earning inflation) for the Basic State Pension, which was then worth just over 26% of average earnings. She decided it would only be increased by prices in future. Over the following decades, it lagged way behind earnings rises for working age people, falling to just over 16% of NAE (National Average Earnings) by 2010.
In 1979, earnings-linked state pensions might justify removing earnings uprating, but millions of women and low earners did not benefit: Abandoning the ‘double lock’ earnings link was perhaps justifiable at the time, as the new, generous state earnings-related state pension (SERPS) was introduced in 1979, expected to provide an earnings-linked pension to supplement the Basic State Pension for those without occupational or private pensions. Unfortunately, many women and disabled people on low earnings accrued little or no SERPS, especially when working part-time or caring for others. They were only credited for Basic State Pension (BSP) by the National Insurance credits system, so they ended up with little more than BSP. Even those women who had SERPS generally earned less than men for most of their lives, so they had much less additional earnings-linked pension.
By 2010, BSP had fallen to just 16% of average earnings and around one in three pensioners did not claim their Pension Credit entitlement: After years without earnings protection, poorer pensioners were struggling. That is why the 2010 Coalition laudably recognised pensioners had fallen too promise. While intending to reduce benefits for working age people (to encourage more into employment rather than relying on benefits) it wanted to protect pensioners, who could not be expected to work.
The triple lock has helped state pensions recover but both BSP and new State Pension remain below 1979’s 26% of average earnings: The triple lock protection has lifted BSP (£137.60 a week) from 16% to now 19% of average earnings which is still below the 26% in 1979. For those with extra earnings-linked pensions, this may be less important however, as discussed, millions have little or no additional pensions. Even the 2016 new state pension (which is meant to incorporate the earnings-linked supplements of the old system into a single new payment) has not made up for the post-1979 removal of earnings protection. The full New State Pension (179.60 a week) is below the 26% of average earnings BSP level, as is Pension Credit minimum guarantee (£177.10pw).
I do hope Parliament will listen.