• PENSIONSANDSAVINGS.COM

    From Ros Altmann:economist and pensions,
    investment and retirement policy expert

  • pensionsandsavings.com

    State Pension earnings link in triple lock must not be abandoned

    State Pension earnings link in triple lock must not be abandoned

    • State Pension earnings link in triple lock must not be abandoned.
    • Uprating reflects retrospective inflation but forecast steep price rises will hit poorest pensioners most.

    Government must not abandon the earnings link in the State Pension uprating calculation:  To abandon the earnings link element of the State Pension triple lock would be a potential disaster for pensions and pensioner poverty.  With the lowest State Pension in the developed world and millions of pensioners already living in poverty, failing to uprate their pension to reflect both earnings and price inflation will leave many more struggling.

    Do not repeat the mistakes of 1979: The Conservatives abandoned the earnings link in 1979, at a time when the State Pension was worth over 26% of average earnings. Over the following decades, the State Pension eroded in value significantly, so that by 2009 it was worth just 16% of average earnings. This caused real hardship for the millions of elderly pensioners who survive on just state pensions.

    Even after the 2010 triple lock, the State Pension has not recovered to 1979 levels: Even after ten years of the triple lock, State Pensions (BOTH the Basic State Pension and the New State Pension) remain below the level it was in 1979 relative to earnings.

    The UK’s deliberately low State Pension policy relies on private pensions to top it up: But millions of pensioners, mostly women, have no private pension at all.  Many never had the chance for an occupational pension and seem to have been ignored or overlooked in policy deliberations. This leaves them vulnerable to poverty. Denying them the earnings link will make them worse off relative to the rest of society.

    This would set a dangerous precedent that state pensions can be subjected to short-term revenue-raising raids: I hope the Government does not decide to do this, even supposedly on a ‘temporary’ basis, since it sets a dangerous precedent that state pension spending can be adjusted in the short term if a Chancellor wants to raise some revenue easily.

    Government can choose which earnings measure to use, but it must not abandon the principle of earnings protection:  Socially, this would be punishing the most vulnerable elderly people unfairly in my view.  The Secretary of State has always had discretion to decide which earnings measure to use. Ministers could use adjusted earnings perhaps. However it is vital that the principle of protecting pensioners against rises in either prices or earnings must not be sacrificed again.

    Using a 2.5% uplift makes no sense: The element that has no economic or social rationale is the 2.5%, so a decision to use this arbitrary figure seems particularly inappropriate.

    Pension uprating reflects last year’s inflation, but the coming year will see much higher increases: The uprating of the State Pension is only retrospective, reflecting price or earnings increases that have already occurred.  The State Pension is not protected against unanticipated prospective rises.  This coming year, the Bank of England has already confirmed it expects inflation to overshoot its target and perhaps reach 5%. This alone would justify ensuring that pensioners are protected as promised in the Manifesto.


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