Saturday, September 04, 2021

Don't scrap the "Triple Lock" - reform it

I believe that the state pension in Britain can and should be protected by a "triple lock" which ensures in a fair and sustainable way that the real value of the pension is protected and that it's real value must keep pace over time with that of wages and salaries as it failed to do in the nineties and the first decade of this century.

The problem is that the present "triple lock" is not fair or sustainable.  

The "Triple lock" shoud not be scrapped - but it must be reformed.

The present version of the triple lock made sense in 2010 when it was introduced after Gordon Brown's repeated smash and grab raids on pensioners' savings and investment - the intention was to keep it for ten years so as to improve the position of pensioners. It has done that, but there is an issue with the way it currently operates which cannot be sustained indefinately and which, because of the pandemic, is about to run foul of the law of unintended consequences.

It sets up a "ratchet" which guarantees that over time the relative position of pensioners will always improve compared with those in work - and it can never ultimately be sustainable to promise any section of society that their income relative to the rest of society will go on increasing for ever. This is particularly the case when we look at the combined effect of the triple lock with the impact on younger amd lower paid workers if the government has to propose a tax or NI increase to fund sorting out the cost of social care. 

I don't believe that would have been necessary without the pandemic but in present circumstances  it probably is.

Last year, when the real earnings of most people in work took a hit and some people took a massive hit, the "triple lock protected the value of the pension, which is exactly what it was supposed to do.

This year average wages recovered by about 8% as the economy bounced back from the COVID recession. No sensible person would regard that as a genuine wage increase in any real sense - wage earners are just getting back some of what they lost. 

This is not going to be popular with everyone,but I think it it would be a classic example of the law of unintended consequences, and makes no sense at all, to pay people on the state pension the bounceback from a hit which they never took.

But just refusing to pay anything would not be the right policy either - "a triple lock" is of no value of it is abandoned whenever it does not suit the government, however good a reason they have (and they ahve a very good one this year.).

We do need a triple lock, it is necessary to ensure that the real value of pensions is always protected and that the pension keeps up with inflation and that there is an earnings link which ensures that pensions also keep up with wages.

But it would be much, much fairer if that earnings link were based on an INDEX so that the real value of the pension has to keep up with the long-term increase in wages and salaries rather than being tied to the annual changes which, as we see this year, can produce ridiculous fluctuations and an unfair and unsustainable ratchet.

I wrote a piece on Conservative Home a few weeks ago suggesting that the earnings element of the "Triple lock" should guarantee that the cumulative increase in the basic state pension must always keep up with the cumulative increase in wages and salaries, rather than making the calculation on a year-on-year basis.

You can read that article by clicking on the link below.,

Chris Whiteside: Scrapping the pensions triple lock would be wrong, but not reforming it would be a missed opportunity | Conservative Home


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