"Average Earnings Growth" and triple lock

Aretnap

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. 

That's debatable. The triple lock is clearly unsustainable in the long to very long term so how it will affect people who are many years from claiming their state pension remains to be seen.

I think people who are in their 20s now will, rightly, assume that the state pension they get in 40+ years will depend on many factors, particularly the economic and political circumstances which the country funds itself in 40 years from now (which are basically impossible to predict). Whether the state pension goes up next year by CPI, earnings, 2.5% or something else is likely to have very little impact on what it looks like in 40 years time.

NedS

hugheskevi said:

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.

I think the issue here is that the triple lock was introduced to address a specific issue, that the SP had fallen behind over the previous period of time and needed redressing. The problem we now face is that once that redress has occurred, how do we remove the triple lock as no thought was given to time limiting it or removing it once it had done it's intended job. So now we are stuck with a policy that is unaffordable in the long term, everyone knows it, but no one has the political will to address it.

I think we need some form of cross party politics in the UK to address the hard issues that everyone agrees need fixing but knows are political suicide so won't touch with a barge poll. Either make it a cross party thing where all parties agree by consensus new policy in an apolitical way or have an independent panel make recommendations for the government to implement so no one party takes the blame:

• Reform of the triple lock
• Reform of the welfare state/benefits system
• ...

The down side is we lose accountability, but at least we may be able to get things done (looking at Labour, their 146 seat majority and their total inability to reform the welfare system despite everyone in agreement it's totally unsustainable and urgently needs fixing - please note this is not a criticism of Labour but rather the political system we operate within).

Aretnap

hugheskevi said:

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.

Annuities, DB pensions etc aren't really comparable to the state pension though. In the short term for individual pensioner's they are linked to inflation, it's true. However in the long term they are linked to earnings - the value of an individuals DB pension, or the amount they have saved in their DC pot is linked to the amount they have earned during their career. So the long term trend is for them to rise more in line with earnings than with inflation, as there is inevitably a turnover of people receiving them.

The state pension WAS linked to inflation only through the 80s, 90s and 00s. The result was that it fell further and further behind earnings in that period, resulting in increasing levels of relative poverty among pensioners, particularly the not insignificant number who didn't have large DB pensions or property wealth. 

Restoring the link with earnings is eminently sensible policy - the capacity of the state to pay pensions increases by a number much closer to earnings than to inflation (at least, if we gloss over the small problem of an inexorably aging society...). Increasing by a bit more than earnings for a limited time period is perhaps justifiable as a means of restoring the value that the state pension has before the earnings link was broken in the 80s. However increasing it by more than earnings forever, as seems to be the current policy, is clearly unsustainable and must result in something breaking at some point.

BikingBud

NedS said:

hugheskevi said:

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.

I think the issue here is that the triple lock was introduced to address a specific issue, that the SP had fallen behind over the previous period of time and needed redressing. The problem we now face is that once that redress has occurred, how do we remove the triple lock as no thought was given to time limiting it or removing it once it had done it's intended job. So now we are stuck with a policy that is unaffordable in the long term, everyone knows it, but no one has the political will to address it.

I think we need some form of cross party politics in the UK to address the hard issues that everyone agrees need fixing but knows are political suicide so won't touch with a barge poll. Either make it a cross party thing where all parties agree by consensus new policy in an apolitical way or have an independent panel make recommendations for the government to implement so no one party takes the blame:

• Reform of the triple lock
• Reform of the welfare state/benefits system
• ...

The down side is we lose accountability, but at least we may be able to get things done (looking at Labour, their 146 seat majority and their total inability to reform the welfare system despite everyone in agreement it's totally unsustainable and urgently needs fixing - please note this is not a criticism of Labour but rather the political system we operate within).

I am not sure there is currently any accountability, there is just blame and flip.

All politicians play the short game and we do not consider fair and sustainable solutions.

hugheskevi

Aretnap said:

hugheskevi said:

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.

Annuities, DB pensions etc aren't really comparable to the state pension though. In the short term for individual pensioner's they are linked to inflation, it's true. However in the long term they are linked to earnings - the value of an individuals DB pension, or the amount they have saved in their DC pot is linked to the amount they have earned during their career. So the long term trend is for them to rise more in line with earnings than with inflation, as there is inevitably a turnover of people receiving them.

That was the same as the uprating mechanism for SERPS and State Second Pension between 1978 and 2015 - earnings revaluation between accrual and State Pension age, then by prices once in payment. It was quite a good mechanism to ensure that pensions kept their value relative to earnings over long time periods, and ensuring it held value in real terms once in payment.

It also had the advantage that there wasn't a single 'full' rate that everyone got irrationally fixated on.

Stubod

..never sure why they would exclude council tax from any measure of inflation??....surely it is something nearly everybody has to pay, it has been going up by more than inflation for the last few years, and (for us at least), it is our 2nd biggest expense after food!!

Andy_L

Stubod said:

..never sure why they would exclude council tax from any measure of inflation??....surely it is something nearly everybody has to pay, it has been going up by more than inflation for the last few years, and (for us at least), it is our 2nd biggest expense after food!!

CPIh includes Council Tax

Cobbler_tone

Numbers out. Hopefully the ‘olds’ are happy.

cfw1994

Cobbler_tone said:

Numbers out. Hopefully the ‘olds’ are happy.

Looks like 4.7% (unless inflation rockets this month).
https://www.moneymarketing.co.uk/news/state-pension-set-for-4-7-rise-in-april-2026-amid-triple-lock-pressures

Not sure why it would only be the ‘olds’ who should be pleased at this: anyone who makes it to SPA in the future will benefit, no?

Cobbler_tone

cfw1994 said:

Cobbler_tone said:

Numbers out. Hopefully the ‘olds’ are happy.

Looks like 4.7% (unless inflation rockets this month).
https://www.moneymarketing.co.uk/news/state-pension-set-for-4-7-rise-in-april-2026-amid-triple-lock-pressures

Not sure why it would only be the ‘olds’ who should be pleased at this: anyone who makes it to SPA in the future will benefit, no?

I guess if it’s still in the same guise when we get there, although there is the caveat that it needs to be funded in meantime. No offence by the term anyway, I consider myself an ‘old’!
I wish I’d had a 4.7% pay rise in the past 4 years!*

*apologies for the lazy reference, I’ll be having a pop at resident doctors next.