State Pension Annual Increase

Madrick

Still working on my "NUMBER" and constantly changing forecast...

With the state pension
There is an annual increase of... 

Whatever is highest... 
The rise in Consumer Prices Index (CPI) measure of inflation,

increasing average wages

or 2.5%

So therefore no matter what happens, the state pension will always increase by at least 2.5%
and it would take a major debate in Parliament to overturn or change this ruling


(I know this year has a widely debated triple lock, with furlough accounting for an apparent non existant increase in wages, but ignoring that) 

MX5huggy

Yes, is there a question in there? 

jamesd

Some additional fine details:

For those reaching state pension age since 2016 only the portion of the pension up to the single tier cap gets triple lock increases. The rest gets just CPI increases. This is typically the situation of those who weren't contracted out of the earnings-related part of the state pension much.

The state pension used to be linked to earnings but the Thatcher government changed this to inflation. Since the long term trend is for earnings to grow by around 1% above inflation the result was the state pension gradually decreasing in relation to earnings. Since relative poverty is related to earnings, at 60% of them, the result was a gradual increase in the number of people dependent on the state pension who were falling into relative poverty and/or qualifying for means tested benefits, particularly single older women.

The purpose of the triple lock was to slowly increase the pension towards where the old earnings link would have placed it. Exceptional situations like the big covid drop then increase in average pay weren't anticipated and it would be fair to manage that in some way with a lower increase to fulfill the original gradual intent aspect of the policy. There's also not been a real big increase in average earnings, just that covid drop and bounce back.

Madrick

MX5huggy said:

Yes, is there a question in there? 

Sorry, I  left out the?  Cheers

So me allowing a 1% increase within my calculations was a good idea.... 

now I'll have a few more pennies in my old age👍

squirrelpie

I think any changes to the state pension will be part of the budget, so whilst there will be a debate the vote will be whipped and no government has been defeated at the budget for over 75 years, according to wikipedia anyway.

Regarding the specific issue of this year's increase, I heard one speech by Sunak where he said there was a design error in the formula because it didn't account for dips like we've just experienced. So I think he may try to change the formula to account better for dips and then keep the formula in place. The net effect may well be to effectively reduce it to a two-way lock this way but that is probably fair. We'll have to wait and see.

Personally, I think the main thing to watch at the moment is inflation.

jamesd

Yes, given the gradual objective I'd agree with him that it was a design error, though it did make for a very simple bullet point presentation.

Agree that inflation is a more interesting thing to watch. Interesting that today the chairman of the Federal Reserve cautioned about reducing fiscal easing measures too quickly while the US economy was still recovering. Naturally that gave a boost to markets but it also implies less action against any inflation increases in the US. BoE position seems similar.

squirrelpie

Madrick said:

MX5huggy said:

Yes, is there a question in there? 

Sorry, I  left out the?  Cheers

Still not quite sure what question you were asking, so don't be too thankful.

So me allowing a 1% increase within my calculations was a good idea.... 

now I'll have a few more pennies in my old age👍

Personally, I don't use any inflation-related factors into my calculations. They're too unpredictable. Simpler to work in present-day money.

marlot

squirrelpie said:

... no government has been defeated at the budget for over 75 years,....

It is essentially a vote of confidence in the government.

A government which cannot pass a budget cannot govern.

Madrick

squirrelpie said:

Madrick said:

MX5huggy said:

Yes, is there a question in there? 

Sorry, I  left out the?  Cheers

Still not quite sure what question you were asking, so don't be too thankful.

"So therefore no matter what happens, the state pension will always increase by at least 2.5%." 


Was my question, which was answered
Thanks 👍

MACKEM99

Madrick said:

squirrelpie said:

Madrick said:

MX5huggy said:

Yes, is there a question in there? 

Sorry, I  left out the?  Cheers

Still not quite sure what question you were asking, so don't be too thankful.

"So therefore no matter what happens, the state pension will always increase by at least 2.5%." 


Was my question, which was answered
Thanks 👍

The only guarantee is death and taxes.

MX5huggy

Madrick said:

squirrelpie said:

Madrick said:

MX5huggy said:

Yes, is there a question in there? 

Sorry, I  left out the?  Cheers

Still not quite sure what question you were asking, so don't be too thankful.

"So therefore no matter what happens, the state pension will always increase by at least 2.5%." 


Was my question, which was answered
Thanks 👍

Until there is a change in the law at least, if there was a sustained period of deflation which hasn’t happened since the 1920’s it would be unsustainable.