"Average Earnings Growth" and triple lock

MeteredOut

SnowMan said:

Interestingly it now appears that the new state pension did not (arguably) increase by the triple lock this year.

This appears to be because the ONS have quietly revised up the July 2024 3 month average earnings figure from 4.1% to 4.4% in recent months. They had previously revised it up from 4% to 4.1% but this happened before the budget announcement and was incorporated. Hence the increase was actually 0.3% (=4.4% minus 4.1%) less than earnings. Is that correct?

I wonder if they'll use the original, the revised, or the revised-revised baseline figure when calculating the 2025 figure. It could make a big difference (cumulatively).

westv

GunJack said:

Must admit I think it's about time the triple lock was done away with and SP just rises at CPI. If it helps save more messing with ages then why not? I never really understood the argument in linking to earnings anyway....

Wasn't that done to address the (at the time) the major disconnect between average earnings and the SP??
Or are you saying the SP and average earnings should have no connection at all?

GunJack

westv said:

GunJack said:

Must admit I think it's about time the triple lock was done away with and SP just rises at CPI. If it helps save more messing with ages then why not? I never really understood the argument in linking to earnings anyway....

Wasn't that done to address the (at the time) the major disconnect between average earnings and the SP??
Or are you saying the SP and average earnings should have no connection at all?

Yes, I think I am saying that, they're two separate things. 

Aretnap

GunJack said:

Must admit I think it's about time the triple lock was done away with and SP just rises at CPI. If it helps save more messing with ages then why not? I never really understood the argument in linking to earnings anyway....

Earnings increase (on average) faster than inflation, and society's expectations of what is a reasonable lifestyle increase in line with earnings, not inflation.

While a pension linked solely to inflation would, in theory, allow pensioners to maintain a constant standard of living, that isn't really good enough. A standard of living that might have been considered acceptable in the 1970s (ice on the inside of your windows in winter, three channels of TV maximum, a crap car that you had to spend every weekend fixing just to keep on the road, all the other things that idiots in Facebook insist were brilliant and character building) would, rightly, no longer be considered an acceptable way to expect pensioners to live today.

So when the state pension WAS linked to inflation rather than earnings, through the 80s, 90s and 00s, it led to pensioners becoming poorer and poorer in relative terms. Depending on your point of view, the triple lock was either a blatant bribe to persuade pensioners to vote Conservative, or a sensible tool to put right this old wrong by gradually raising the state pension in real terms over time.

Problem is that the triple lock has now become less of a time limited tool and more of a scared cow which must never ever be tampered with, even though increasing pensions faster than earnings forever is self-evidently unsustainable over the longer term. A far better policy (as opposed to far better politics) would have been to set a goal for an increased state pension as a percentage of average earnings, set a reasonable timeframe for getting to that goal, then link to earnings (only) once it has reached that point 

Secret2ndAccount

Wow, that's an awful lot of good sense you've squeezed into one post there Aretnap

xylophone

more of a scared cow 

Stampeding?

GunJack

Aretnap said:

GunJack said:

Must admit I think it's about time the triple lock was done away with and SP just rises at CPI. If it helps save more messing with ages then why not? I never really understood the argument in linking to earnings anyway....

Earnings increase (on average) faster than inflation, and society's expectations of what is a reasonable lifestyle increase in line with earnings, not inflation.

While a pension linked solely to inflation would, in theory, allow pensioners to maintain a constant standard of living, that isn't really good enough. A standard of living that might have been considered acceptable in the 1970s (ice on the inside of your windows in winter, three channels of TV maximum, a crap car that you had to spend every weekend fixing just to keep on the road, all the other things that idiots in Facebook insist were brilliant and character building) would, rightly, no longer be considered an acceptable way to expect pensioners to live today.

So when the state pension WAS linked to inflation rather than earnings, through the 80s, 90s and 00s, it led to pensioners becoming poorer and poorer in relative terms. Depending on your point of view, the triple lock was either a blatant bribe to persuade pensioners to vote Conservative, or a sensible tool to put right this old wrong by gradually raising the state pension in real terms over time.

Problem is that the triple lock has now become less of a time limited tool and more of a scared cow which must never ever be tampered with, even though increasing pensions faster than earnings forever is self-evidently unsustainable over the longer term. A far better policy (as opposed to far better politics) would have been to set a goal for an increased state pension as a percentage of average earnings, set a reasonable timeframe for getting to that goal, then link to earnings (only) once it has reached that point 

Whilst I take what you're saying, the state pension should only be one (possibly small) part of your retirement income, so having that element linked to CPI only shouldn't hurt too much...let's face it, even the "gold plated" public sector DB pensions of all ilks only increase with CPI and some private sector ones CPI capped.

Aretnap

GunJack said:

Aretnap said:

GunJack said:

Must admit I think it's about time the triple lock was done away with and SP just rises at CPI. If it helps save more messing with ages then why not? I never really understood the argument in linking to earnings anyway....

Earnings increase (on average) faster than inflation, and society's expectations of what is a reasonable lifestyle increase in line with earnings, not inflation.

While a pension linked solely to inflation would, in theory, allow pensioners to maintain a constant standard of living, that isn't really good enough. A standard of living that might have been considered acceptable in the 1970s (ice on the inside of your windows in winter, three channels of TV maximum, a crap car that you had to spend every weekend fixing just to keep on the road, all the other things that idiots in Facebook insist were brilliant and character building) would, rightly, no longer be considered an acceptable way to expect pensioners to live today.

So when the state pension WAS linked to inflation rather than earnings, through the 80s, 90s and 00s, it led to pensioners becoming poorer and poorer in relative terms. Depending on your point of view, the triple lock was either a blatant bribe to persuade pensioners to vote Conservative, or a sensible tool to put right this old wrong by gradually raising the state pension in real terms over time.

Problem is that the triple lock has now become less of a time limited tool and more of a scared cow which must never ever be tampered with, even though increasing pensions faster than earnings forever is self-evidently unsustainable over the longer term. A far better policy (as opposed to far better politics) would have been to set a goal for an increased state pension as a percentage of average earnings, set a reasonable timeframe for getting to that goal, then link to earnings (only) once it has reached that point 

Whilst I take what you're saying, the state pension should only be one (possibly small) part of your retirement income, so having that element linked to CPI only shouldn't hurt too much...

While encouraging people to save for retirement, auto-enrollment etc are all good things, realistically the state pension forms a very substantial chunk of many people's retirement income and this will remain the case for a very long time, particularly people on lower income.

GunJack said:

Aretnap said:

GunJack said:

Must admit I think it's about time the triple lock was done away with and SP just rises at CPI. If it helps save more messing with ages then why not? I never really understood the argument in linking to earnings anyway....

Earnings increase (on average) faster than inflation, and society's expectations of what is a reasonable lifestyle increase in line with earnings, not inflation.

While a pension linked solely to inflation would, in theory, allow pensioners to maintain a constant standard of living, that isn't really good enough. A standard of living that might have been considered acceptable in the 1970s (ice on the inside of your windows in winter, three channels of TV maximum, a crap car that you had to spend every weekend fixing just to keep on the road, all the other things that idiots in Facebook insist were brilliant and character building) would, rightly, no longer be considered an acceptable way to expect pensioners to live today.

So when the state pension WAS linked to inflation rather than earnings, through the 80s, 90s and 00s, it led to pensioners becoming poorer and poorer in relative terms. Depending on your point of view, the triple lock was either a blatant bribe to persuade pensioners to vote Conservative, or a sensible tool to put right this old wrong by gradually raising the state pension in real terms over time.

Problem is that the triple lock has now become less of a time limited tool and more of a scared cow which must never ever be tampered with, even though increasing pensions faster than earnings forever is self-evidently unsustainable over the longer term. A far better policy (as opposed to far better politics) would have been to set a goal for an increased state pension as a percentage of average earnings, set a reasonable timeframe for getting to that goal, then link to earnings (only) once it has reached that point 

let's face it, even the "gold plated" public sector DB pensions of all ilks only increase with CPI and some private sector ones CPI capped.

Actually they are linked to both earnings and inflation. In the short term for individual pensioners DB pensions are linked to inflation it's true, but in the long term for pensioners as a group they are linked to earnings, because people retiring now on DB pensions earn more on average than people retiring 30 years ago.

Nebulous2

GunJack said:

Aretnap said:

GunJack said:

Must admit I think it's about time the triple lock was done away with and SP just rises at CPI. If it helps save more messing with ages then why not? I never really understood the argument in linking to earnings anyway....

Earnings increase (on average) faster than inflation, and society's expectations of what is a reasonable lifestyle increase in line with earnings, not inflation.

While a pension linked solely to inflation would, in theory, allow pensioners to maintain a constant standard of living, that isn't really good enough. A standard of living that might have been considered acceptable in the 1970s (ice on the inside of your windows in winter, three channels of TV maximum, a crap car that you had to spend every weekend fixing just to keep on the road, all the other things that idiots in Facebook insist were brilliant and character building) would, rightly, no longer be considered an acceptable way to expect pensioners to live today.

So when the state pension WAS linked to inflation rather than earnings, through the 80s, 90s and 00s, it led to pensioners becoming poorer and poorer in relative terms. Depending on your point of view, the triple lock was either a blatant bribe to persuade pensioners to vote Conservative, or a sensible tool to put right this old wrong by gradually raising the state pension in real terms over time.

Problem is that the triple lock has now become less of a time limited tool and more of a scared cow which must never ever be tampered with, even though increasing pensions faster than earnings forever is self-evidently unsustainable over the longer term. A far better policy (as opposed to far better politics) would have been to set a goal for an increased state pension as a percentage of average earnings, set a reasonable timeframe for getting to that goal, then link to earnings (only) once it has reached that point 

Whilst I take what you're saying, the state pension should only be one (possibly small) part of your retirement income, so having that element linked to CPI only shouldn't hurt too much...let's face it, even the "gold plated" public sector DB pensions of all ilks only increase with CPI and some private sector ones CPI capped.

It's a part of retirement income that people very much depend on. Look at how much time, effort and thought in this forum goes into strategies to bridge the gap between early retirement and receiving the state pension. 

Looking at a couple - with two state pensions now a fraction under £24k. Add the same in DB income between them. £48k gross per year is seen as decent by most people, yet half of it is coming from the state pension. 

Add another £24k in DB and our fortunate couple now have £72k in secure income. That's seen as well off by most people, but they are still dependent on the state pension for a third of it. A third that I'm sure they would be loathe to part with! 

Yorkie1

Aretnap said:

Actually they are linked to both earnings and inflation. In the short term for individual pensioners DB pensions are linked to inflation it's true, but in the long term for pensioners as a group they are linked to earnings, because people retiring now on DB pensions earn more on average than people retiring 30 years ago.

I'm curious about your statement that I've highlighted. My perception, over the last 15 years since austerity, is that public sector salaries frequently did not keep pace with inflation (I had two years of 0% pay rise, and at least 1 of 1%). Until recently (Alpha), pensions were linked to final salary and therefore, before being taken, did not keep pace with inflation. 

Without going back and looking, I'd be surprised if in the 15 years before 2010 that salaries outpaced inflation.

So, if that is the case, then - relative to inflation - DB pensions linked to final salary have lost purchasing power over the 30 years.

But I am interested to find out your thoughts.