Triple lock increase for April 2027 is 3.9% (probably)

Secret2ndAccount

I think there are a lot of people who have never received a tax bill in their life. If you were always PAYE, or a housewife who didn't work, and you're now living on 13k, then receiving a retrospective tax bill for £80 could come as quite a shock. Given the administrative cost of collecting £80 plus the political fallout - pictures in the Sun of pensioners going without food for a week to pay their tax bill - it makes sense to avoid ever sending out those bills. Of course, that's year 1. If the pension goes up another £500, then the year 2 tax bill is £180, which starts to be worth collecting.

DWP's inability to deduct tax at source - as every other pension provider and employer in the country is required by law to do - is the problem

hugheskevi

https://forums.moneysavingexpert.com/discussion/comment/82138358#Comment_82138358

This is accompanied by a woeful lack of understanding amongst many of how tax is calculated. To a lot of folks, it is a complete mystery, and all they see is the bottom line.

In year 1, that is likely to be a small, manageable amount. An annoyance, but it can be dealt with.

In year 2, the amount is significantly more, several times more. That is far less manageable, and also raises a big concern of how much more it will be in the following years given they have no idea how it is calculated. Many will refuse to believe it is correct, just assuming it must be wrong despite not knowing how it is calculated.

Then they have the administative hassle of writing to their MP, online forums, etc, about how unfair it all is 😉

sheramber

https://forums.moneysavingexpert.com/discussion/comment/82137165#Comment_82137165

https://forums.moneysavingexpert.com/discussion/comment/82137128#Comment_82137128

People looked forward to getting the increase age allowance.

SnowMan

https://forums.moneysavingexpert.com/discussion/comment/82138263#Comment_82138263

I could have made several challenges or additions to answer 2 which is why I said 'one way of looking at it'.

I was looking to, in a simple way, to differentiate the two issues of how the state pension increases relative to inflation or earnings, and as we know over time this means the state pension with the triple lock increases by more than earnings and is unsustainable, from the tax and other affects which affect both pensioners and working age people, albeit as you rightly say in different ways. You can't really counter the un-sustainability point by saying but allowing for tax the state pension hasn't really increased in line with earnings for example. That was my intended point.

Of course there are many other areas of intergenerational unfairness.

michaels

https://forums.moneysavingexpert.com/discussion/comment/82138470#Comment_82138470

So it seems that the vast majority of pensioners during the period of triple lock have seen its real value after tax increase by 0.3% a year. Is this too much or unaffordable? In terms of intergeneration unfairness, seems to me the lower the increase in pensions, the bigger the impact on future pensioners relative to current pensioners so the more unfair generationally - basic maths that no one seems to understand.

Where do we want the state pension to go?

Keep up with inflation after any tax changes?

Keep up with inflation before any tax changes?

Keep up with earnings after any tax changes (obiuovusly applied to both pensioner and worker income)?

Keep up with earnings before any tax changes?

MacMickster

Surely the state pension should be designed to provide a minimal subsistence standard of living to the elderly, who should be encouraged throughout their working lives to make provision for themselves beyond that minimum.

In determining that subsistence level of pension, it is evidently the net amount received which is important.

The triple lock should be abolished immediately. If the current pension provides that subsistence amount there is no justification whatsoever for increasing the net amount beyond an inflationary increase. If it doesn't meet that subsistence level then it should be increased today.

Like most benefits, in determining a subsistence level then it probably needs to be looked at on a household basis. If there are 2 pensioners in a household then they don't require double the amount of a single pensioner. Means testing beyond that however would deter people from making their own pension provision.

mrklaw

minimum wage isn’t a net amount. perhaps its calculated based on what it would provide as a net amount but its still paid gross.

I would think they could simply allow state pension to be entirely exempt of all tax but it wipes out your personal allowance so only everything above that is taxed at 20%. Then calculate the pension amount based on that - so maybe increase it by only 80% of what it would be with wages/inflation/a roll of the dice (those are the three locks right)? So you’re reducing the raise because everyone gets it paid gross and not taxed.

seems like that’d be a way around the inability to tax it PAYE?

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82138560#Comment_82138560

This sounds like an argument in favour of scrapping the state pension entirely and making everyone rely on pension credit.

SnowMan

https://forums.moneysavingexpert.com/discussion/comment/82138522#Comment_82138522

The triple lock was introduced in 2011/2012 so it’s not 0.3% from when the triple lock came in, it’s 0.3% above CPI from 2017/2018. It’s more difficult to model the period prior to 2017/2018 because age related allowances applied before then and there wasn’t a single main level of state pension or a single level of increase (as only basic state pension increased with the triple lock). Hence why I started from the new state pension introduction.

You say

‘seems to me the lower the increase in pensions, the bigger the impact on future pensioners relative to current pensioners so the more unfair generationally - basic maths that no one seems to understand.’

Let's look at the opposite. If you give a state pension increase of say 5% when earnings are say 3% then I’m guessing your logic is that as the average current pensioner only benefits from that generous increase for half a retirement (because your average pensioner is half way through retirement) whereas the working age person benefits from that increase for the whole of their retirement once they reach SPA, then the working age person benefits most from that higher increase.

In practice increases aren’t independent of each other. Give an increase that is too high on some criteria (affordability/fairness) then that means you have to scale back future increases at some point to bring back fairness or affordability. And in the meantime the pensioner has gained at the expense of the working age person.

The problem with the triple lock is that every time earnings increases are less than CPI or 2.5% you get an above earnings increase. That’s just not sustainable and you can’t hide behind tax increases or that it hasn't yet got completely out of control to pretend that it is.

And if over 10 years say earnings have increased by say 30%, and prices by 25% then the cumulative state pension increase will depend on the breakdown of how much and in what order those increases happened which is silly.

I’m not against a policy that considers at some point in time that the general level of state pension needs to be increased as say a proportion of earnings, but you have to have a clear target of when those above earnings increases stop, such as when the new state pension reaches some percentage of annual average earnings.

As to how I think state pension should increase. I'm agnostic between increasing it in line with solely earnings, or solely inflation. It seems to me the already legislated SPA increases ensure that the proportion of adult working life spent in retirement is roughly constant over time so I don't think SPA should be increased further and in particular the transition to SPA 68 should not be accelerated in my view. However I would say demographics (drop in birth rate below 2 children per female) is the argument against using earnings to increase the state pension. You could also decree that the state pension wouldn't go down in nominal terms but that any earnings decrease/deflation figure would be deducted from the next positive figure.

michaels

.Historically, wages grew faster than inflation, typically yielding a 2% annual increase in real income for workers. When pensions were fixed strictly in real terms (only matching inflation), retirees quickly lagged behind the working population. Over retirement, a pensioner’s income could slide from 40% of the median wage down to the lowest income decile. While they did not become poorer in absolute terms, they became significantly poorer relative to society, as their purchasing power fell far behind the average consumer.

In a demographic steady state, dedicating a fixed percentage of national wages to pensions remains permanently affordable. The tax burden on workers stays constant unless the employment rate drops or other government spending rises.This underpins a specific model of intergenerational fairness: even if a retiree worked in an era with lower productivity and lower wages, their current pension is tied directly to today’s higher output per head. While some might view it as "unfair" that pensioners enjoy a standard of living funded by modern wages rather than their own historical contributions, it is entirely fair on a PAYG basis, ensuring retirees always receive a stable share of current national wealth.