Yesterday I was writing about the need to be pragmatic about the indexation of our pensions. Today I read in the FT that the calculation rules for the triple lock mean that pensioners could be in for an 8% rise in their state pension next year, mainly due to last year’s earnings being depressed by the pandemic and the furlough.
Sunak faces £4bn bill to keep ‘triple lock’ pension pledge https://t.co/0ZNoxyyS2i via @financialtimes
— Josephine Cumbo (@JosephineCumbo) June 16, 2021
The cost of a 1% increase in the state pension is £800m, the extra pension bill is likely to be £4bn a year and will set a new base for future increases.
As with so many pension disputes, the devil is in the pension increases which, once granted, cannot be taken away. It is also in the way that a commitment to pay increases (in this case via the triple lock) is applied.
The price of certainty of delivery is high and if paid in full will come out of other budgets. As the FT points out
The Treasury’s choice on pensions will be compared with its refusal to countenance a one-off outlay on catch-up education spending, agreeing to just a tenth of the level recommended by the government’s adviser.
Last night the Institute and Faculty of Actuaries held an excellent session discussing intergenerational issues arising from the poor setting and implementation of pension policy.
It struck me listening to the various speakers, that Britain has lurched from one pension crisis to another because of our failure to take a long term holistic view of pensions, but rather focus on fighting for minute accuracy to pre-agreed rules that keeps lawyers busy and beggars our neighbours.
Recent examples include arguments over CPI, RPI and CPIH. the McCloud judgement, the ruling on GMP equalization and the ongoing squabbles between USS , he pensions regulator and employers and members of USS. This may be counted a rather broad range of issues to be thrown in the same wheelbarrow, but my argument is that all of these issues could be solved by the application of pragmatism (e.g. common sense) rather than perseverance with the letter of the law.
And almost every dispute has , at its heart, the long term impact of the granting and guaranteeing of pension increases.
Which is why I am arguing for a pension system based on consensus and good governance and not on promises that are considered rights.
CDC restores the pension to the workplace pension and it can do so because it promises nothing. If people are prepared to enter into an arrangement based on good faith between parties , rather than contractual rights, we have a way forward.
As with CDC , so with the state pension, the starting point should be what is best for all, not what is the pensioners – by right.
