Among the Money Marketing reporters I’ve learned to admire in the last couple of years, Lois Vallely is top of my list. Not only is Lois an elegant writer, her use of drop intros – a teasing, suspense-generating, sideways introduction to a story – is exceptionally good.
A superb example of a Vallely drop intro, as she first took us through her skills as a Texas Hold ’Em player, was her cover story for last month’s issue on the subject of the triple lock for pensions.
In recent weeks, both Tory and Labour parties have been trying to come to terms with the fact a policy originally intended to generate small above-inflation annual increases in the value of the state pension suddenly risk landing whoever is next in office with huge bills for two years in a row: 10.1% last year and, potentially, another 8.5% in April.
The real losers, as ever, will be pensioners
Lois is right: faced with that scenario, both prime minister Rishi Sunak and leader of the opposition Keir Starmer are desperately praying the other side cracks first and announces a “review” of the triple lock that will lead to it being neutered before its costs spiral out of control.
That way, whoever blinks first can be accused of a heartless attack on pensioners’ incomes. Meanwhile, the other side will say, while their opponent is behaving brutally towards the elderly, they cannot possibly make further commitments on the triple lock until such a review is completed – at which point we can safely assume it will be ditched.
Which would be a tragedy. Because if the triple lock is dumped, as many predict, it will mark the end of a brief period when, for the first time, millions of UK pensioners have dared to hope they wouldn’t be facing abject poverty in the final years of their lives.
Scrapping it would be to treat state pensions as bargaining chips in a game between political parties determined to look ‘responsible’ on public spending
For all the talk of how today’s retirees are lording it over every other age cohort in the country, the reality is that the full state pension is worth just £203 a week at present. That’s £10,500 a year. Plus a few hundred quid extra in winter fuel payments. That’s just over 25% of the mean average salary for full-time workers in the UK.
What many better-off commentators also forget is that inflation for someone who spends a disproportionate proportion of their income on food, meant extra annual costs of 13.6% in August 2023 compared to 12 months earlier, dropping to “just” 9.9% last month.
Compared with that, a potential 8.5% increase in the state pension next April will still mean a large cut in pensioners’ living standards.
The triple lock has allowed retirees to claw back at least some of the income disparity between themselves and those still in work
Ah yes, but what about the fact pensioners mostly own their own homes and don’t pay mortgages? Sure, 75% of over-65s have paid off their home loans. Yet ironically, the value of those same homes will either be eaten up by the cost of paying for care in old age, as successive governments endlessly delay adult social care reform, or their children will expect a large slice of that money as part of their inheritance.
What of occupational pension schemes? Shouldn’t they be counted along with the state pension? Well yes, except that official government census data in 2022 shows only 39% of private sector workers contributed to defined contribution pensions. The average value was £10,300.
For public sector workers in defined benefit schemes, the average participation rate was 82%, with an average value of £65,400 – even with employers’ contributions and staff paying in 10% of their incomes. That’s worth barely £2,700 a year, assuming you take no tax-free lump sum. Hardly what dreams are made of.
Whoever blinks first can be accused of a heartless attack on pensioners’ incomes
The triple lock is a poor substitute for a formal policy where pensioners’ incomes would be pegged to something like 40%, maybe even 50%, of the average annual wage. But it has allowed retirees to claw back at least some of the income disparity between themselves and those still in work.
Scrapping it without a viable replacement would be to treat state pensions as bargaining chips in a poker game between political parties determined to look “responsible” on public spending. The real losers in this scenario, as ever, will be pensioners.
Nic Cicutti can be contacted at nic@inspiredmoney.co.uk
As Bastiat said,
“Government is the great fiction, through which everybody endeavors to live at the expense of everybody else.”
I’m soon going to qualify for mine it is my interest to supppport this but who is going to pay? It’s the same with social care and all other soical policies. Over and above a basic level of subsistence it is the individual’s responsibility not that of others.
Yay! At last someone else who knows of Bastiat.
And yes, in a free society based on exchange, the rule of law and sound money, low taxes and government as umpire not player, we would all be able to provide for ourselves. And where not charity would kick in.
Nic
I have been saying this until I’m blue in the face. This whole story is looking down the wrong end of the telescope. You will see from my previous comments that here in the UK we pay the most parsimonious pension in any advanced economy and now also have one of the latest retirement ages. The basic state pension is well below £1k per month. Not exactly Champaign and caviar territory.
The state pension is a pittance compared to other European countries. All very well to say it’s up to the individual, but for most pensioners their workplace pensions are linked to the investment markets. That means that the lowest paid workers end up with the smallest pensions, investment risk and a poor standard of living. I’d like to see Government be a lot more careful about the management of OUR money. Yes we taxpayers who keep the coffers filled for the Government to spend as they see fit. I want more external oversight and easy access to see how our money is spent, written in plain understandable language.
MP’s, government, don’t give two hoots about the state pension other than messing with them to win votes
They are not reliant on the state pension, so no real incentive to sort out this Ponzi scheme, other than to fiddle and win votes
I suspect when (and its only a matter of time) it hits the brick wall and smashes to pieces, MP’s are just placing a 50/50 bet hoping they are not the ones in charge !!
IMHO our governmental system / party politics is not working for us (the people) in this country, for quite sometime its all game playing and winning votes using things like the state pension, NHS, tax system, nett zero nonsense, and woke blind alleys, as I say winning votes or climbing the greasy pole.
On the flip side I suppose it says more about us …opting to shrug our shoulders in acceptance, rejoicing on which colour lipstick is on the lips of the pig, rather than shouting about it and demanding change ?
It’s that Parliament is not working it is that it has been deliberately emasculated to put the technocratic managerialists (AKA The Blob) in charge. And they definitely do NOT give a stuff about any one of us.
Remember that, surprisingly, under the Teflon Twins the SP went up by £0.50p a week – now that IS prudent spending even though there was, apparently, no money left!! The coalition Govt. played catch up for the recipients who now, much like Prof. Hertzberg’s employee benefit theories, are loathe to let go of the 3x lock.
Further, is it partly Covid or a more general malaise, that people seem more concerned with getting payouts from Govt. than the cost of them aka tax + borrowing + propaganda. Ask anyone in business, and they will tell you that it is sooo hard to get most things actually done, and particularly within a time.
The days of arguing about the split of the ‘cake’ are gone, now, it seems, few can be bothered to make it in the first place!!
P.S. I agree with Nic C. regarding Lois V. writing powers… I must be honest though… Psycho’s parsimonous luncheon invites exhibit a dearth of empathy with old(er) brokers… 🙁
Lol…
LV… I only just saw your reply a week after you sent it…apologies…I suppose it will be lunch on me…sniff… 🙁
Actually, I seem to remember t’ Guv’nor saying something similar too…!!
Only just back to speed after an enforced weeks tasting in Cognac.. and you were so nearly invited… well a bus ride away perhaps.. Is London the bst meet up location?