It amazes me that we find the triple lock front page news when we voted in a Government two years ago who clearly said there would be no change in how the state pension this parliament.
There are three things that cost the country when it comes to people growing elderly
- Healthcare (including social care)
- Benefits (for those who need special help)
- A state pension for everyone.
Of these, the easiest for us to get our heads around is the state pension and how it’s going up.
That’s why “no news” is big news from our soon to be “new” Prime Minister.
Pensions matter to us and that’s why this blog exists. We don’t want “pots” we want pensions and pensions that keep up with inflation!
Financial fairness
If you pay out more through the pension (what the triple lock does), then you have to ask whether we pay too much. The State Pension is not generous compared to other countries, even the USA pays more. Our national insurance system is supposed to collect and pay without a fund (though there is a relatively small fund). The national insurance payments have increased of late and most of us accept they must to meet not just the State Pension but the healthcare and benefits, paid most to the old.
That we do not pay the State Pension on a means-tested basis (as we do Pension Credit) is reasonable. Pension Credit is a substantial top-up to those who have too little to live on but its importance will reduce as more people have some savings through the workplace pension system. Pension Credit and other benefits are administered with success, they are not causing concern as elderly healthcare and social care does. That is where we need more help to the elderly, we have ducked the question of support for those who are at the extremity of life and close to death.
That as a nation, we discuss these three aspects of financing the elderly is good. It is a sign of a country that respects its elderly and realises that state support of the old is needed. Most families are released from care for the elderly by at least one of the three costs born centrally and paid for through national insurance. The one we all benefit from is the State Pension which brings some comfort to our oldest relatives and nowadays can pay out to two generations at the same time. Children can be paid the same benefits as parents when in their sixties , seventies or even elder. Grandchildren may be paid the state pension at the same time as their grandparents (Emmerdale has one such family).
If you say that the State Pension is financially unfair to the young, then you are saying what the older generations said 40 years ago and what the yet to be born children will say in 40 years time. There is a balance between generations that cannot be achieved by one generation or another. It must be achieved by all generations and this leads us to politics.
Fairness is delivered as politicians see it; we vote them in and out
The triple lock is thanks to a Conservative Government and a Liberal pensions minister (Webb). It snuck in in 2010 at a time of austerity and is now well established.
The government spends about 5 per cent of GDP on state pension benefits, up from 3.5 per cent at the turn of the century.
Part of this is due to us becoming an older country and part of that is that we have lagged in increasing the state pension age in line with our increasing longevity. A lot of that increase is down to real increase in the amount paid out, achieved through the triple lock.
To earn ourselves relief from the drain on our Treasury, on tax and especially on national insurance, we need to have a private pension system that takes up the strain on income that not working brings.
I am sorry to go back to the debate between retirement savings delivering “wealth or pensions” but this is where wealth is secondary to income in later life. We need some savings – at the least to meet calls on our cash we cannot meet from income; but we need the income more. This is why the tax system is based on 75% of our savings being taken as taxed income and 25% as tax-free cash. Taxed income = pension to most people.
This is what we as a nation are turning back to. Whether through default funds that pay a regular income (I hope increasing) to death, or the CPI linked CDC pension or the variously increased DB pension we have a variety of pensions.
We also have annuities, no longer a default but still drawn. Only annuities are generally paid out “level” -without increases. Around 80% of annuities bought , are bought to paid without increases. If we leave the market to dictate, as the annuity market did till 2015, it would ill serve the needs of pensioners.
The triple lock is contentious, the mis-selling of annuities uncontentious. How does that make sense? I conclude that annuity sales have met immediate need and ignored the future, until we apply the rigour of thinking we have about state pension to private income (including annuities) we are talking “non-sense”.
I would like the discussion about increases to pensions through the triple lock to extend to a discussion about the pensions that we get from workplace saving.
Until we have pensions as a default, we will not have an option to reduce the increase in the state pension that we’ve committed ourselves to – till 2029.
Of course, many of the people who are in financial services are sufficiently wealthy to consider income unimportant (we fret over inheritance and other capital taxes not paying bills). Well-off people may have wealth trickling down the generations (as Major put it). But they are only a part of the retiring population,
Most people face living on an income in retirement well below the income they enjoyed at work. That’s it for the majority of people. That is what the “adequacy” work of the Pension Commission is referring to.
We need to narrow the income gap of workers and pensioners through private pensions and that is what recent reforms will do. Till that kicks in, we’ll have an increasing state pension and another Prime Minister pointing to its importance. This may be politics, but politics reflects the views of the population as a whole. As a nation, we want the triple lock to remain in place, until we have a wage in retirement we can live on.
