"Average Earnings Growth" and triple lock

hugheskevi

Although the theory of how State Pension should be set is important, the reality is that no government is going to significantly reduce the income of existing pensioners, either through the calculation of State Pension, the rate, or the taxation of it.

So that means that significant savings won't materialise from any change for quite a long time, probably decades, given Govts are unlikely to make significant detrimental changes to those within 10 years of State Pension age either. It is very common in politics that everyone can agree the current system doesn't work, but no-one can agree on a system to replace it, so the status-quo prevails despite being suboptimal to many other policies. Perhaps social care is the best example of that.

The biggest realistic savings that could have an immediate beneficial Exchequer effect would be changing uprating to plain CPI and an extra penny or two on income tax. Although even that would be hugely politically unpopular and only likely to happen if there were more significant expenditure cuts and tax increases levied on other groups at the same time.

Less plausible would be the introduction of means-testing at a very high level that is frozen in cash terms and slowly affects more and more individuals. But given the lack of immediate savings it is unlikely to be worth the political cost. In a similar vein, perhaps some tax increase applied to the highest pension incomes and again frozen in cash terms, but to get any meaningful results that would probably need to apply from about higher rate tax threshold, and there is already a 20% hike at that point so there is probably a limit to what you can do without harming saving incentives for middle earners (given it looks like higher rate tax thresholds are going to affect more and more in the future, so pension incomes at or around higher rate tax won't be especially unusual in the future perhaps).

Given increased spending is not on the table and the politics of pensions, that probably locks us into the existing system, with a few tweaks around uprating and State Pension age in the longer term (from 2037 perhaps).

The single-tier pension introduced in 2016 is very interesting in this regard, as it left expenditure largely unchanged in the short term, significantly reduced expenditure in the long-run, and was widely perceived as a more generous system as people didn't really understand State Second Pension and contracting-out. But it hard so see how a Govt could repeat this under the existing system.

Grumpy_chap

Perhaps everything should be converted to a formula where each element is a percentage of average full time  (40hr-week) earnings.  It would take all the regular decisions away from being political each time and if there was a political decision to change the ratios, it would be clear and obvious:

Average full time earnings = factual data from ONS   
NMW = A% afte
SP = B% afte
UC = C% afte
Basic rate tax threshold = D% afte
Higher rate tax threshold = E% afte
Additional rate tax threshold = F% afte
etc.

I'd also do away with all the complexities that distort behaviours, such as withdrawal of personal allowance, HICBIC and so on.

It would then be very obvious if taxes are rising or falling as it would be simply the tax rates or the %afte that changes.
Equally, changes that result in revised redistribution would also be obvious - increase D% and reduce F% (or vice-versa) is clear for all to see

MK62

Exodi said:

MK62 said:

Exodi said:

Stubod said:

..as long as it is CPI H..!!!!

Forgive me, but how would that be fair? The housing element of CPIH includes rent and mortgage interest?

Around 3/4s of pensioners own their homes outright, with the small remainder either having a tiny outstanding mortgage, being social renters or a very small percentage (about 1/20) being private renters.

It would be hard to justify increasing pensioner income inline with mortgage/rent increases, when only a single digit percentage of pensioners pay it, no?

https://ifs.org.uk/publications/how-have-pensioner-incomes-and-poverty-changed-recent-years~
(source: data in the introduction section).

Yes, I know CPIH also includes Council Tax and other relatively minor housing costs.

....but the number of pensioner homeowners is set to fall significantly over the coming years and the number of pensioner private renters is set to rise as a consequence......plus, pensioner homeowners pay council tax, so would it be fair to restrict state pension increases to basic CPI alone?

Then perhaps consider increasing it by CPIH in the future... it's nonsense to even suggest it while only 5% of pensioners are private renters.

Just think about the optics of asking taxpayers of whom are currently paying eye-watering rent/mortgages, to pay for uprating of pension benefits in line with rent/mortgages increases, despite pensioners being nearly all owner occupiers with no mortgage. Even more ironically, the taxpayers landlords are likely to be the people they're being asked to pay the uprating too...

I already touched upon Council Tax as I suspected it would be used as excuse - it's a relatively minor proponent of CPIH - my mortgage is 7.5x my council tax.

FWIW, significantly more pensioners receive Child Benefit than pay rent/mortgages. Why not pay all pensioners Child Benefit, regardless of whether they have children? That's effectively what's being asked here. People are having children later after all, so the number of pensioner child benefit receivers is set to rise as a consequence.

It's nonsense and this type of shameless greed is exactly the reason we're stuck on this triple lock rollercoaster to ruin to begin with. 

Not suggesting linking the state pension with rent/mortgages, so no idea where you got that from....I asked very clearly whether it would be fair to link the state pension to "basic CPI alone".
That measure of inflation does not include a relatively hefty tax for some, (council tax), which successive governments have allowed to rise by more than CPI (and CPIH for that matter), significantly more in some cases. Your mortgage may be 7.5x your council tax (that's your choice), but for many pensioners council tax is a significant chunk of their income........if the triple lock is abandoned, in favour of an inflation link alone (single lock if you like), then surely it would be fairer to link it to CPIH (which includes CT) rather than CPI (which does not)........may not be perfect, but what is?

Not really sure why child benefit is relevant here........or is it your suggestion that only a minority of pensioners pay council tax, and therefore all pensioners should be denied any uplift to it......seems a bit unrealistic tbh.

Eldi_Dos

Exodi said:

MK62 said:

Exodi said:

Stubod said:

..as long as it is CPI H..!!!!

Forgive me, but how would that be fair? The housing element of CPIH includes rent and mortgage interest?

Around 3/4s of pensioners own their homes outright, with the small remainder either having a tiny outstanding mortgage, being social renters or a very small percentage (about 1/20) being private renters.

It would be hard to justify increasing pensioner income inline with mortgage/rent increases, when only a single digit percentage of pensioners pay it, no?

https://ifs.org.uk/publications/how-have-pensioner-incomes-and-poverty-changed-recent-years~
(source: data in the introduction section).

Yes, I know CPIH also includes Council Tax and other relatively minor housing costs.

....but the number of pensioner homeowners is set to fall significantly over the coming years and the number of pensioner private renters is set to rise as a consequence......plus, pensioner homeowners pay council tax, so would it be fair to restrict state pension increases to basic CPI alone?

FWIW, significantly more pensioners receive Child Benefit than pay rent/mortgages. Why not pay all pensioners Child Benefit, regardless of whether they have children? That's effectively what's being asked here. People are having children later after all, so the number of pensioner child benefit receivers is set to rise as a consequence. 

I cannot decide if you are being tongue in cheek or if you really are asserting more pensioners receive Child Benifit than pay rent/mortgages, if it is true in your neck of the woods the demographics are very different than here.

Who knows maybe those saga type adverts where people of a certain age with good teeth are cycling and skiing down mountains or waltzing round the dance floor while the liner sails into the sunset are post code dependant too.

Exodi

MK62 said:

Exodi said:

MK62 said:

Exodi said:

Stubod said:

..as long as it is CPI H..!!!!

Forgive me, but how would that be fair? The housing element of CPIH includes rent and mortgage interest?

Around 3/4s of pensioners own their homes outright, with the small remainder either having a tiny outstanding mortgage, being social renters or a very small percentage (about 1/20) being private renters.

It would be hard to justify increasing pensioner income inline with mortgage/rent increases, when only a single digit percentage of pensioners pay it, no?

https://ifs.org.uk/publications/how-have-pensioner-incomes-and-poverty-changed-recent-years~
(source: data in the introduction section).

Yes, I know CPIH also includes Council Tax and other relatively minor housing costs.

....but the number of pensioner homeowners is set to fall significantly over the coming years and the number of pensioner private renters is set to rise as a consequence......plus, pensioner homeowners pay council tax, so would it be fair to restrict state pension increases to basic CPI alone?

Then perhaps consider increasing it by CPIH in the future... it's nonsense to even suggest it while only 5% of pensioners are private renters.

Just think about the optics of asking taxpayers of whom are currently paying eye-watering rent/mortgages, to pay for uprating of pension benefits in line with rent/mortgages increases, despite pensioners being nearly all owner occupiers with no mortgage. Even more ironically, the taxpayers landlords are likely to be the people they're being asked to pay the uprating too...

I already touched upon Council Tax as I suspected it would be used as excuse - it's a relatively minor proponent of CPIH - my mortgage is 7.5x my council tax.

FWIW, significantly more pensioners receive Child Benefit than pay rent/mortgages. Why not pay all pensioners Child Benefit, regardless of whether they have children? That's effectively what's being asked here. People are having children later after all, so the number of pensioner child benefit receivers is set to rise as a consequence.

It's nonsense and this type of shameless greed is exactly the reason we're stuck on this triple lock rollercoaster to ruin to begin with. 

Not suggesting linking the state pension with rent/mortgages, so no idea where you got that from....I asked very clearly whether it would be fair to link the state pension to "basic CPI alone".

At least take a quick glance at context - I replied to someone suggesting linking the state pension to CPIH.

If you're in agreement that linking SP to CPIH is not fair (because it's largely based on rent/mortgage increases and pensioners by and large do not pay rent/mortgages) but you're also suggesting linking SP to plain CPI is not fair, then what is it you're suggesting?

MK62 said:
That measure of inflation does not include a relatively hefty tax for some, (council tax)

This was such a predictable response, I included it in my first post that spurred this because I predicted it would be used as an excuse. I've already responded on it twice, I don't have the energy to go round in circles, council tax is relatively small proponent of CPIH, you know this.

MK62 said:
if the triple lock is abandoned, in favour of an inflation link alone (single lock if you like), then surely it would be fairer to link it to CPIH (which includes CT) rather than CPI (which does not)........may not be perfect, but what is?

Now I'm lost again, because you said above that you're not suggesting increasing the state pension in line with rent/mortgages increases but then end your post suggesting linking it to CPIH, where the housing element is heavily based off rent/mortgage increases?

By chance, are you a pensioner? It's interesting that your 'may not be perfect' solution just happens to be the one that is heavily advantageous to pensioners. The optics of asking taxpayers to give increases to pensioners to cover higher rents/mortgages, when they mostly don't pay them are awful.

MK62 said:
is it your suggestion that only a minority of pensioners pay council tax, and therefore all pensioners should be denied any uplift to it......seems a bit unrealistic tbh.

That's a silly strawman to try set up - no one is suggesting pensioners don't pay council tax. Deliberately misrepresenting peoples positions doesn't bolster your point of view.

My point, which I have remained consistent on, is the housing element of CPIH is predominantly driven by mortgage/rent increases, so would not be fair to be used to uprate pensioner benefits, who by and and large do not pay mortgages or rent. I accept there are a single digit percentage of pensioners who do. People unfortunately always fall through the cracks, but it is fairer than the alternative.

On the point of Council Tax (that I predicted would be used as the excuse, hence including it in my very first response), it is but a tiny part of CPIH. Mortgage/Rents are much bigger components. I accept uprating by CPI alone would also be an imperfect solution, but fairer than uprating by CPIH on account of Council Tax, when Council Tax is only a tiny part of it.

Looking at the long term, and projected demographic pyramids, pensions will become increasingly unsustainable, especially while pensioners remain opportunistic, like it appears you are. Personally, I think uprating in line with average earnings is the simplest and fairest solution. Living standards increase (and decrease) in line with general population. Universal Credit and most working-age benefits are uprated by CPI alone - will you champion the cause to uprate them by CPIH also? The same argument could be used for that  as you are using, that they pay council tax (despite many having rent subsidised).

It does feel like a circular debate on this point though, so I won't respond on the same topic if your response is again effectively "but Council Tax is also in CPIH".

MK62

Exodi said:At least take a quick glance at context - I replied to someone suggesting linking the state pension to CPIH.

If you're in agreement that linking SP to CPIH is not fair (because it's largely based on rent/mortgage increases and pensioners by and large do not pay rent/mortgages) but you're also suggesting linking SP to plain CPI is not fair, then what is it you're suggesting?

CPIH is not "largely based on rent/mortgage increases"...….only c.16% relates to Owner Occupier Housing costs (the other 84% is vanilla CPI). Of that 16%, about 4% relates to Council Tax, while the other 12% relates to "rental equivalance" (a measure used to estimate housing costs), but that does not then mean that anyone not paying rent faces no increases in those housing costs.

I stated that linking to CPIH would be fairer than linking to basic CPI should the triple lock be abandoned in favour of a "single lock" link to inflation. I haven't claimed it'd be a perfect solution.

Exodi said:This was such a predictable response, I included it in my first post that spurred this because I predicted it would be used as an excuse. I've already responded on it twice, I don't have the energy to go round in circles, council tax is relatively small proponent of CPIH, you know this.

Just dismissing Council Tax as an "excuse" might be your position.....it's not mine. Council Tax is the highest tax many pensioners will be paying.......the fact that it's only 4% of CPIH is perhaps a failing of the CPIH method of calculating inflation, as for many, Council Tax constitutes a fair bit more than 4% of their "basket of goods".

Even so, since 2010 (when the triple lock was introduced) the rise in average council tax has outstripped all 3 standard measures of inflation, so not including some sort of link to it in the annual SP increase review would seem to me to be somewhat disingenuous.

Exodi said:Now I'm lost again, because you said above that you're not suggesting increasing the state pension in line with rent/mortgages increases but then end your post suggesting linking it to CPIH, where the housing element is heavily based off rent/mortgage increases?

Then I suggest you read more carefully......I am not suggesting linking state pension increases to rent/mortgage increases.......I'm suggesting, that should the triple lock be abandoned in favour of a single lock to inflation, then linking to CPIH would be fairer than linking to CPI (I stated several times it's not perfect, but then nothing is here).....only c12% of CPIH relates to those costs.

Exodi said:By chance, are you a pensioner? 
Not for a few years yet...…

Exodi said:It's interesting that your 'may not be perfect' solution just happens to be the one that is heavily advantageous to pensioners. The optics of asking taxpayers to give increases to pensioners to cover higher rents/mortgages, when they mostly don't pay them are awful.

Well firstly, you do know that 8.8M state pensioners pay income tax too...….Secondly, it's interesting that your own solution of linking to average earnings would have been even more "advantageous" to pensioners than linking to CPIH, but hey ho...……

Exodi said:That's a silly strawman to try set up - no one is suggesting pensioners don't pay council tax. Deliberately misrepresenting peoples positions doesn't bolster your point of view.

Then perhaps you could enlighten us to what you did mean with your Child Benefit analogy...….

Exodi said:My point, which I have remained consistent on, is the housing element of CPIH is predominantly driven by mortgage/rent increases, so would not be fair to be used to uprate pensioner benefits, who by and and large do not pay mortgages or rent. I accept there are a single digit percentage of pensioners who do. People unfortunately always fall through the cracks, but it is fairer than the alternative.

My point, which I have also remained consistent on, is that it would not be fair to exclude Council Tax (which has risen well beyond inflation) from any calculation on state pension increases. It may only be a small part of CPIH (that's another argument), but at least it's a part.....even though, for many pensioners it's a much bigger part of their expenditure than CPIH would suggest. You might dismiss Council Tax as an excuse, but I don't accept that. At this time, there is no officially used statistic for inflation which includes Council Tax but excludes OOH......we have CPI and CPIH (plus the soon to be reformed RPI), so if you are going to abandon the triple lock and link the SP to one of those inflation measures, I think linking to CPIH would be fairer than linking to CPI....even if that means that some pensioners might get a small uplift to the housing element of CPIH which they don't actually pay. The priority in calculating SP increases should be to protect those at the bottom first (even if that means some at the other end get more than they really should (means testing everyone isn't practical)…...not the other way round.

Exodi said:Looking at the long term, and projected demographic pyramids, pensions will become increasingly unsustainable, especially while pensioners remain opportunistic, like it appears you are. 

Personal insults don't help make your case. I am not (yet) a state pensioner, so don't (yet) personally benefit from any of this thank you......but like many on here, I do have family who are. I can honestly tell you that Council Tax is more than 4% of their "basket of goods"......and it has risen a lot more than inflation (barring the short Covid related inflation spike a few years ago). 

I agree that the triple lock will probably have to go at some point....(but who will grasp that nettle), but it's what you replace it with......

Exodi said:Personally, I think uprating in line with average earnings is the simplest and fairest solution. Living standards increase (and decrease) in line with general population. Universal Credit and most working-age benefits are uprated by CPI alone - will you champion the cause to uprate them by CPIH also? The same argument could be used for that  as you are using, that they pay council tax (despite many having rent subsidised).

No, because pensioners will have had their housing related cost increases generally "covered" by linking their SP to CPIH.

Silvertabby

Just one point, which is often overlooked......

You don't have to be State pensioner - yet - to benefit from the triple lock increases to the State pension.  The pension you are accruing each year, through working or paying NI by other means, also increases by the triple lock factor. 

MK62

Fair enough......but I did say I dont benefit "yet".

Everyone who qualifies for a state pension will eventually benefit.......I do wonder how many will change their view on SP increases once they actually become state pensioners though.....

hugheskevi

Silvertabby said:

Just one point, which is often overlooked......

You don't have to be State pensioner - yet - to benefit from the triple lock increases to the State pension.  The pension you are accruing each year, through working or paying NI by other means, also increases by the triple lock factor. 

I think that relies on some very strong "ceteris paribus" assumptions.

Pensions will always have policy changes. Even as recently as 2016, the Triple Lock increases applied between 2011-15 became meaningless for most (members with protected payments excepted), as almost everyone not close to retirement had their entitlement reset to the standard level of the new State Pension in most cases.

Even if no policy change occurs, the cost of high annual increases will be controlled with increases to the State Pension as DWP Ministers and Treasury Ministers come to believe that people should spend less time in retirement due to the funding challenge of State Pension. So younger folk will get the higher amount but from an older age, whilst funding the cost of the higher increases in the short term through increased taxation on their production.

hugheskevi

MK62 said:

Everyone who qualifies for a state pension will eventually benefit.......I do wonder how many will change their view on SP increases once they actually become state pensioners though.....

I've always found the debate about State Pension increases odd.

For almost all of the 1980s and 1990s State Pension increases were plain RPI.

Annuities have always been nil increases, flat rate increases, or RPI increases, either capped or uncapped.

Defined Benefit pensions have always been either nil, CPI or RPI, with various caps in the vast majority of cases - the exceptions being a fixed indexation figure, or discretionary increases.

DC pensions in drawdown often aim to be able to cover inflation increases to a target expenditure level.

So for most pension income, it is accepted that income rises by at most prices, and in many cases less. But over the last 15 years social expectations are that State Pension should increase by a minimum of uncapped inflation, and usually more. Especially when then there is volatility between earnings and prices, or inflation is low, which makes no sense at all.