Damned if you do - damned if you don't

[Kilkis]

COVID-19 has dumped another new problem on the UK government's desk regarding UK State Pensions. In case anyone is not aware annual increases in UK State Pension are subject to a so called triple lock. The percentage increase is the highest of CPI, average wage growth or 2.5 %. CPI is currently well below 2.5 % so that is out of the equation. Because of the way the payment intervention used by the government to support companies and workers is deployed and what happens when it unwinds, the OBR estimates that it will appear as an 18 % increase in wages next year. This is an artefact but it could result in UK State Pensioners getting an 18 % rise next year if the government does nothing, as the triple lock is enshrined in law.

If the government pays such a massive rise there will be howls of rage from everybody not on a pension, especially those who have suffered really badly under the COVID-19 lockdown. The only way he can not pay it is to pass a law to remove the triple lock when he promised to maintain it in his election manifesto. As an additional twist, because maintaining the triple lock was in his election manifesto, under the Salisbury Convention, the House of Lords are free to vote down any new bill that seeks to remove it. While I would personally benefit from an 18 % rise, I think to make such an increment when the economy is tanking would be ridiculous. Equally I don't trust any government.

Prior to 1980 pension increments were linked to wage rises but that was abandoned by Thatcher and they became linked to RPI. From 1980 to 2010 wages increased by an accumulated total of 566 % while RPI had an accumulated rise of 295 %. Pensioners lagged workers by 271 % cumulative over that period. Looking at it slightly differently in 1979 before the change was made the UK State Pension was 26 % of average earnings. By 2008 it had dropped to 16 % of average earnings. These were massive changes. Since 2008 it has recovered to 23 % of average earnings mainly due to the triple lock. Apparently that means everything is back to normal but that isn't quite true. The accumulated loss of income during the 40 year fall is far more than the accumulated gain over the last 12 years.

I think the government certainly needs to take some action to stop an 18 % pension increase next year but I hope it is not done in such a way that it causes a permanent loss of the link to wages.

Warwick

PS For the small number of people who are now on the new UK State Pension, their income is 30 % of average wages so they are above where it was in 1980. They, however did not go through the period of loss.

PPS The inflation index was changed from RPI to CPI in 2011 when the triple lock was introduced.

[Jeffstclair]

Interesting .. I suppose an 18 percent rise would just about cover the money we have lost due to the fall in the value of the pound against the euro over the last few years.

[Guy M]

It’s six months after a general election and the government has an 80 seat majority - they very likely won’t have to go back to the country for a long time. The country is facing an estimated reduction in GDP this year of over 10% and steeply rising unemployment. I’d be amazed if the triple lock doesn’t go, at least temporarily. Even so, I won’t be amazed if people are insensitive enough to complain about it.

[Kilkis]

The Cameron-Clegg coalition government didn't go to the country for 5 years but the country didn't forget Clegg's broken promise on student fees, even though the Lib Dems only had a minor influence on government policy. Johnson is, as you say Guy, in total control so he can do virtually whatever he wants but any broken promise is likely to be even more negatively remembered when the next election comes.

I completely agree that it would be crazy to blindly follow the triple lock if it results in an unjustifiable and unsustainable pension rise because of an accounting artefact but what proportion of pensioners, aka voters, will see it that way? I think a lot depends on how he does it. I think that, from the point of view of the economy, any government would want to get rid of the triple lock altogether, since it ties their hands. It was only brought in to buy votes but that suggests that taking it away will lose votes. It will be interesting to see what Rishi Sunak does in July and how the Lords react to it.

Warwick

[Guy M]

I think the triple lock is likely to go this year - like you say, it unnecessarily ties the government’s hands and there’ll never be a better time to be able to justify getting rid of it.

I don’t think any government can be blamed for breaking promises made before last year’s general election given what has happened since- they never said they were going to close schools, quarantine arrivals, pay for millions to stay at home so breaking the promise on triple lock won’t be a driver of how people vote at the next election. I think they will be properly judged on how the country is rebuilt from now onwards - even the rubbish way they’ve handled the last three months won’t matter as much as that.

[Maud]

The end of the Triple Lock has already been suggested by economists and journalists alike. I cannot see how it can be sustained, however I am sure many pensioners will not be happy about a reduced income.

It will not be a problem for those of us who also have a private pension and income from other sources, but for those people who only have a state pension, and are also going to probably face price rises for food and every day necessities on a state pension, they are not going to be happy about a reduction of the Triple Lock.

I might be wrong but I suspect a lot of voters in this position will be in the ‘red wall seats’ that the Conservatives have just won, and even if VAT is going to be reduced from 20% to 17% in the Budget for a year, (as Possibly suggested), you still have to have the money to spend, whatever the price of the purchase.

The U.K. Government, promised us a ‘levelling off’ of society, and a bright new future after Brexit. Undoubtedly Corvid 19 has scuppered so many plans, but ending the Triple Lock will ‘hurt’ some pensioners more than others, and once again it will not be the likes of us that have other income. - I wonder if those people see the benefits to the economy of the country as their priority, or the ‘hit’ to their own pockets? If it is the latter, then the ‘loan’ of those seat up north might be very short term. Voters have longer memories then credited when something hits them personally.

The Government has some very difficult decisions ahead, and this will be the ‘test’ of its capabilities. It is easy to govern when all is going well, but in a crisis..........

[trebor457]

How long will it be before there is a conspiracy theory? Is it all part of a "Cummins" plan to deal with the Pensioners? The way the Government have acted in respect of confining over 70's and the Care Home fiasco doesn't exactly inspire confidence in their actions especially when the majority of deaths are pensioners. If you listen to many of the "Milleniums" ( I include my grandchildren )they think we're responsible for everything. There will be some who will think that all the deaths will save money.

On a lighter note I would like to share a conversation I had recently with a young Greek lady. We were discussing "The Virus". She said "Her and many of her friends thought it was all lies from Governments." She wasn't aware of the amount of deaths around the world and never listened to any International news. I still don't think she believed anything I told her.

[Kilkis]

If you want them to listen post it on social media.

Warwick

[BST]

Given the current economic climate I can't disagree with the end of the triple lock. Not great timing though as those of us who've waited an extra 7 years are scuppered again. For the ladies who are relying so much on the state pension it really is another big blow!

[BST]

If you want them to listen post it on social media.

Warwick

Judging by the comments in response to newspaper articles on FB, there appear to be many young Greeks who still don't believe Covid is real! Bizarre!