"Average Earnings Growth" and triple lock

Aretnap

Yorkie1 said:

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.

Fair point! Well there's a reason why I said "30 years", not "10 years". And why I said "people retiring on DB pensions", not "public sector workers", even if the two terms are becoming increasingly interchangeable. But I didn't actually look up the figures. Maybe I should have said "50 years".

Anyway yes, clearly public sector earnings haven't kept pace with either inflation or earnings as a whole in the medium term. But on the wider point, they have done in the very long term, and thet will have to do so again in the long term (otherwise nobody will work in the public sector). And public sector pensions ARE linked to public sector earnings, even if that means that in recent years the trend has been down rather than up in real terms.

michaels

Compounding and historic real terms annual wage increases of 2% result in a fixed real term income falling way behind average income over a 20+ year retirement.

Of course that 2% real terms income increase also seems to be a thing of the past sadly as we can no longer grow GDP per head at all and the political vogue of simply growing the population instead is not equivalent!

Grumpy_chap

MeteredOut said:

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).

It is quite usual that the statistical figures are adjusted a short while after the initial assessment is made as more information becomes available allowing the accuracy of the assessment to improve.

I do not have any data to back this up, but I very much suspect that there are as many occasions where the reassessment results in the inflation figure moving upwards as there are where the reassessment results in the inflation figure moving downwards.  Consequently, in cumulative terms, the long term difference might well tend towards zero.

BlackKnightMonty

Grumpy_chap said:

MeteredOut said:

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).

It is quite usual that the statistical figures are adjusted a short while after the initial assessment is made as more information becomes available allowing the accuracy of the assessment to improve.

I do not have any data to back this up, but I very much suspect that there are as many occasions where the reassessment results in the inflation figure moving upwards as there are where the reassessment results in the inflation figure moving downwards.  Consequently, in cumulative terms, the long term difference might well tend towards zero.

Sounds unlikely. Revisions to monthly inflation figures are quite rare from what I have seen and quite minor when it occurs.

Adjusting from 3.2 to 3.3 on occasion really makes little difference. It’s in the noise.

MeteredOut

BlackKnightMonty said:

Grumpy_chap said:

MeteredOut said:

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).

It is quite usual that the statistical figures are adjusted a short while after the initial assessment is made as more information becomes available allowing the accuracy of the assessment to improve.

I do not have any data to back this up, but I very much suspect that there are as many occasions where the reassessment results in the inflation figure moving upwards as there are where the reassessment results in the inflation figure moving downwards.  Consequently, in cumulative terms, the long term difference might well tend towards zero.

Sounds unlikely. Revisions to monthly inflation figures are quite rare from what I have seen and quite minor when it occurs.

Adjusting from 3.2 to 3.3 on occasion really makes little difference. It’s in the noise.

But in this case it went from 4% to 4.1% to 4.4%. Maybe they should just wait till they have the data to get it right.

SnowMan

Grumpy_chap said:

MeteredOut said:

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).

It is quite usual that the statistical figures are adjusted a short while after the initial assessment is made as more information becomes available allowing the accuracy of the assessment to improve.

I do not have any data to back this up, but I very much suspect that there are as many occasions where the reassessment results in the inflation figure moving upwards as there are where the reassessment results in the inflation figure moving downwards.  Consequently, in cumulative terms, the long term difference might well tend towards zero.

Generally agree. Except that when I quickly looked at it quickly to work out where last years 4.1% came from, it appeared that most of the scheduled later revisions to the initial earnings inflation figure for a month were upwards. The revisions upwards from the original figure typically range from 0.1% to 0.5% (March 2023 increased from 5.8% to 6.3% over time for example), and the few revisions down were of 0.1% (July 2023 was one important example of this where it was later revised down from 8.5%, which was used for the 2024 new state pension increase, to 8.4%). And most of the time the figure was revised upwards. Of course last years 4.1% did include the revision upwards from 4% (but not the later revisions up to 4.4%).   

With new state pension (unsustainably) increasing by more than earnings over time because of the triple lock, an apparent small systematic understatement of earnings inflation in that part of the calculation is not a big deal, but just something I noticed.  

BlackKnightMonty

MeteredOut said:

BlackKnightMonty said:

Grumpy_chap said:

MeteredOut said:

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).

It is quite usual that the statistical figures are adjusted a short while after the initial assessment is made as more information becomes available allowing the accuracy of the assessment to improve.

I do not have any data to back this up, but I very much suspect that there are as many occasions where the reassessment results in the inflation figure moving upwards as there are where the reassessment results in the inflation figure moving downwards.  Consequently, in cumulative terms, the long term difference might well tend towards zero.

Sounds unlikely. Revisions to monthly inflation figures are quite rare from what I have seen and quite minor when it occurs.

Adjusting from 3.2 to 3.3 on occasion really makes little difference. It’s in the noise.

But in this case it went from 4% to 4.1% to 4.4%. Maybe they should just wait till they have the data to get it right.

It’s never “right” because it’s an estimate. An accurate estimate.

Cobbler_tone

It's funny reading the guess work ahead of a rise that doesn't happen until next year for people who don't generally need it. 

michaels

Cobbler_tone said:

It's funny reading the guess work ahead of a rise that doesn't happen until next year for people who don't generally need it. 

Why would it not generally be needed? Do you have data showing almost all pensioners already earn more than 60% of average household income?

SnowMan

MeteredOut said:

BlackKnightMonty said:

Grumpy_chap said:

MeteredOut said:

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).

It is quite usual that the statistical figures are adjusted a short while after the initial assessment is made as more information becomes available allowing the accuracy of the assessment to improve.

I do not have any data to back this up, but I very much suspect that there are as many occasions where the reassessment results in the inflation figure moving upwards as there are where the reassessment results in the inflation figure moving downwards.  Consequently, in cumulative terms, the long term difference might well tend towards zero.

Sounds unlikely. Revisions to monthly inflation figures are quite rare from what I have seen and quite minor when it occurs.

Adjusting from 3.2 to 3.3 on occasion really makes little difference. It’s in the noise.

But in this case it went from 4% to 4.1% to 4.4%. Maybe they should just wait till they have the data to get it right.

Assuming the new state pension increase is announced in the 2025 budget which will be around the end of October, then the only figure they will have available is the July 2025 figure (which is the figure used by convention) initially published in September but potentially revised by a small amount (or not) in the October 2025 publication. Subsequent revisions to the July 2025 figure could potentially happen as late as the end of 2026 which would be 6 months or so after the new state pension increases actually take place. 

So from a practical basis it is clear why they used 4.1% for the 2025 increase and didn't wait for a point where further changes were highly unlikely. They could of course add in the extra 0.3% to the 2026 increase, to compensate for the later revision, but it's all getting way too complicated then, especially when it's a nuance that pretty much nobody is aware of.