When is a guarantee not a guarantee? – When it’s a pension promise

What happens to the state pension is of huge interest to ordinary people

It should come as no surprise to those who follow Steve Webb or read this blog that the anticipated 8.5% pension increase “guaranteed” by the triple lock is under VAR.

A decision on the definition of earnings will follow shortly and while the goal might stand, the referee (DWP SOS- Mel Stride) is staring intently at the monitor.

Webb pointed out last month that Average Earnings for the months leading up to the September calculation were going to be distorted by one off payments to health and other public sector workers. These will work themselves out of the earnings figures in 2024 but by then the increase to the state pension will be hard coded. Government is letting it be known that it reserves the right to change definitions just as they did in 2021 and more importantly when they switched inflation calculations from RPI to CPI.

Should we be surprised?

No we shouldn’t. Your gold plated DB plan (if you have one) is only as good as its funding and the capacity of an employer to fund it. If you are one of the 440,000 people whose pension is paid by the PPF, you have no longstop- if things go wrong, your pension falls.

Pension guarantees are so complicated, they depend on so many unknowns , that the best we can expect is the fair distribution of what is behind the promise.

It is far better that we own up to the reality that we can only be paid what is there. If you are one of the  pensioners of the Wilkinson (Wilko) DB plan, you are increasingly looking like joining the 440,000 PPF members.

If you are one of the 20,000 Wilko employees with rights in the People’s Partnership, you have the best endeavors of their trustees and pension executive who invest your money, for the pot you receive. Unless something changes , it will be up to you how much income you take when you retire and up to you whether that income runs out before you do.

We should not be surprised that Mel Stride might re-interpret the definition of earnings and reduce the impact of the triple-lock on the state pension, there is only so much of our money to go round. Even Government operates on a “best endeavours” basis.

Beware false prophets bearing guarantees

There are no jobs for life, earnings don’t always go up with inflation and sometimes earnings go down. We live with uncertainty at work and we live with uncertainty about our incomes in retirement. Most of all, we have no control of how long we retire though we can make plans for those we love – when we die.

Plans are not guaranteed either. We make the most of what we have and thank God we are not living in the Atlas Mountains or north-eastern Libya. Those who preach certainty are holding out false hope or selling a commodity too rich for our blood.

Which is not to say that we shouldn’t pay heed of broken promises. If Mel Stride returns from the monitor and rescinds the goal, if Wilko cannot find a backer for its pension scheme, if People’s Partnership can’t offer a pension from its workplace pension, we should feel let down.

Jeff Prestridge makes the point powerfully in the Mail, using reader’s comments. I can point to comments on this blog to show how powerful feelings are on this matter.

But it is part of our contract with Government and governance, that  best endeavours are applied – or put more simply – those who we trust have done their best. Which is why we moan but ultimately – move on.

Pensions are different

Because of the time waiting  till pensions get paid and the time that passes while pensions are paid, pensions are different. A 25 year mortgage might occupy a quarter of your life, a pension takes up four/fifths (assuming a 100 year life).

We cannot predict our journey at outset or the many turns it will take before it ends and we live with this mutability with stoicism and good humour.

We know that pensions are hard and that is why most of us look to experts to take decisions on our behalf. We need those experts to be honest and explain to us that the rules we trusted, sometimes get broken, that best endeavours do not always work out.

I would like Mel Stride to walk away from the monitor and let the goal stand. I expect he won’t – either way, I put my trust in his judgement – we have no other choice.

Pensions are different and we have to accept they won’t turn out the way we expect. If we can have confidence in those who manage them, we will find them much more enjoyable.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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6 Responses to When is a guarantee not a guarantee? – When it’s a pension promise

  1. con keating says:

    This would be a classic mistake. In one fell swoop it destroys confidence in our pensions system and that is critical to the levels of private pension saving. It also would make close to certain the likelihood of Labour winning the coming general election.

  2. henry tapper says:

    But there is ample precedent – even within this parliamentary term.

  3. John Mather says:

    This underlines the vulnerability of the loss of the sponsoring company. A risk factor ignored in the past.

    Sound bites like “Gold Plated” clearly a meaningless and dishonest chant invoked when logic is absent.

    If you wrongly believe that you have a certain pension and your pension needs are assured then satisfied needs do not motivate and savings rates decline.

    Retrospective taxation and fiscal drag continue to undermine confidence which is particularly cruel when the individual has no ability to correct the situation. Face to face with guidance is often at or close to retirement

    Another sound bite “guidance” too little too late

    The tide is out and you are now seeing who has been swimming naked. In Q1 of 2024, an overdue market correction will surprise

    The Uk productivity is the problem worth solving. The alternative is more pi***ng into the wind, which gives instant relief but a mess when you look what you did.

  4. EDWARD GREEN says:

    BP made promises to employees about raising DB pensions in line with inflation as long as fund can afford it. But first test when inflation spikes up the increase is denied despite fund being in surplus!

  5. Bryn Davies says:

    If the Government excludes one-off payments in setting the 2023 earnings increase then, logically, they have to exclude them when setting the 2024 earnings increase. It most be open to legal challenge if it doesn’t. Which means, as far as earnings increases are concerned, the effect of the exclusion only lasts for a year. Whether or not the effect becomes permanent depends on the relationship with the, as yet unknown, September 2024 price increase and 2.5%. But my guess is that 2024 triple lock increase will be the earnings increase.

  6. Dr Robin Rowles says:

    When I was a director of the Trustee Company that ran our DB Pension Fund the annual payment requested of the sponsoring company each year was an actuarial evaluation of the funding required based on the known longevity statistics for retired employees and estimates of inflation over that period. Doubling the size of the fund over 10 years may not be anything to boast about, but the Actuarial surplus is still there, unlike the company’s commitment to RPI increases however big that might be!

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