"Average Earnings Growth" and triple lock

michaels

SnowMan said:

michaels said:

Of course from April 27 we will be in the situation that those on pension credit will get the full amount whereas those on the state pension will get less as they will lose some of their income to tax. I can not see any logical way of justifying that those who have not contributed should get more than those who did but what do I know?

Worth remembering that the guaranteed pension credit top up (for a single person) is to £227.10pw for 2025/2026 which is less than the new state pension of £230.25pw (so £3.15pw difference). 

And the guaranteed pension credit rate top up amount will probably go up with prices into 2026 whereas the new state pension increase will be the higher earnings increase. Over time the difference should widen. 

Also it is income net of tax that is taken into account for pension credit purposes. So perhaps that would mean that when the new state pension becomes greater than the personal allowance that a net state pension figure would be used as income albeit the state pension is taxable but paid gross. 

So I wouldn't accept that the normal scenario (or even a common scenario) will be someone who 'has contributed' getting less.

That said it may be possible to construct an example where someone is better off (even now) through not having a full new state pension than having a full state pension. Perhaps a couple where one partner gets the full new state pension and one gets very little state pension and where there are disability or carer elements of pension credit in play and where there are passported benefits such as council tax benefit involved.       

Thanks, didn't realise it was based on net income - so we still may well see people who only get the state pension having some taken away in tax and then being paid a top up of pension credit....

SnowMan

SnowMan said:

The earnings percentage used for the earnings element of the triple lock calculation has been established through custom to be the July 2025 seasonally adjusted total pay including bonuses figure published today (16th September) of 4.7%. The July 2025 figure is the average of the year on year increase in earnings for the 3 months of May, June and July. 

This July 2025 earnings figure can be subject to a small revision when further earnings data is published on 14th October and 11th November. These publications occur before the budget takes place on 26th November, which is when the triple lock increase is usually announced. For example in 2024 the corresponding July 2024 earnings figure of 4% published in September was revised to 4.1% in October and the triple lock increase was based on this 4.1% revised figure.

So while CPI is unlikely to exceed 4.7% and the earnings element will almost certainly bite, there could still be a small revision to the 4.7%. 

The October further earnings data mentioned above has been published today (14th October) and the July 2025 seasonally adjusted total pay including bonuses figure of 4.7% published on 16th September has been revised upwards to 4.8%.
Consequently the anticipated triple lock increase, that should be announced in the budget, should now be 4.8% and not 4.7% unless this July 2025 earnings figure is further revised in the earnings data publication of 11th November. 

Cobbler_tone

'Pensioners should contribute more' the vultures were circling on IMO on 5 Live this morning. The usual responses of "I've paid in all my life", with one chap saying that he has never been better off in his 70's and suggested continuing NI contributions would be a good idea.
It is one of those 'arguments' that will polarise the nation. I think it is fair to say that the current state pension (with Triple Lock particularly) is unsustainable long term. The point of paying in for X number of years doesn't really stack up, as we all pay very different amounts. They cited that over 60's have half of the countries wealth, which could be common sense but don't think many will like the likely answers to solve a lot a of the issues.
I think we will see the beginnings (or rather continuation) of addressing this next month. 

Moonwolf

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 triple lock was introduced as a tempting measure as an affordable way to lift pensioners out of poverty. The alternative would have been a big single uplift which was unaffordable.

The rough plan was to turn it off at some point in the future when the goal of most pensioners on full state pension being out of poverty had been reached. That is probably the case now, but it turns out that turning it off is almost politically impossible. In the past a government with a big majority in the first year might have risked it, now there is no telling what the electorate will recall forever and what they will forget two days later.

Simon11

I agree with you Cobbler, the triple lock has to be brought down slightly (average of the three or double lock) but I fear the politicians just don't have the guts. Everyone in the UK, should feel a small squeeze, not just people working.

As for pensioners in poverty- they have had over 40 years to get their finances in order and with plenty of growth/ opportunities over the last few decades that the current generation working just won't get. 

Hopefully they stand strong, but I doubt they will target this group.

MK62

Slapping NI on pension payments is very unlikely in my view, at least full rate NI. You can't simply whack existing pensioners with a new 8% tax and not expect serious pushback....... 

Dazed_and_C0nfused

MK62 said:

Slapping NI on pension payments is very unlikely in my view, at least full rate NI. You can't simply whack existing pensioners with a new 8% tax and not expect serious pushback....... 

And that's before thinking about the anomalies using the existing NI system would bring.

Pensioner has worked all their life as a Teacher and gets say £25k Teachers Pension.  Will pay NI on anything above ~£1,048/month

Next door neighbour also has £25k (non State) pension income but spread across 3 individual pensions, each paying less than £1,048/month. So no NI to pay.

hugheskevi

Moonwolf 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 triple lock was introduced as a tempting measure as an affordable way to lift pensioners out of poverty. The alternative would have been a big single uplift which was unaffordable.

The rough plan was to turn it off at some point in the future when the goal of most pensioners on full state pension being out of poverty had been reached. That is probably the case now, but it turns out that turning it off is almost politically impossible. In the past a government with a big majority in the first year might have risked it, now there is no telling what the electorate will recall forever and what they will forget two days later.

If only pension uprating had been left as straight RPI instead of introducing the Triple Lock at all. It would be the same amount today within a few pence, just without all the political machinations and the endless pre-election promises and speculation.

Cobbler_tone

As stated previously, the Triple Lock is such high profile it is a dog to address. The same with direct tax rates.

Reducing the TFLS, introducing pension fund levy's, reducing tax relief on contributions, messing around with IHT, freezing tax bands (etc as examples) and a lot more 'stealthy' and people are either not directly impacted or fail to understand what it potentially means for them.
A lot of people are solely focused on what they get paid each month and their respective bills and food shop. 

Silvertabby

MK62 said:

Slapping NI on pension payments is very unlikely in my view, at least full rate NI. You can't simply whack existing pensioners with a new 8% tax and not expect serious pushback....... 

Wasn't the NI proposal just in respect of actual earnings, not pension income?  At the moment, NI ends at SPA regardless of salary.  That could work if the pensioner had already accrued the full single tier pension, but those on less would naturally expect their ongoing NI contributions to boost their State pensions.

There was a suggestion some years ago to simplify the tax system by rolling tax and NI together into one rate - but I think it was the adverse affect on pension income that put the kibosh on that.

And there are current State pensioners who are still working because they HAVE to, not because they want to.  A huge reduction in their incomes wouldn't go unnoticed.