Retirement PENSIONS, PRICE INDEXES AND PROBLEMS… With big changes to the UK’s pensions system proposed, Shire takes a look at the current situation, how it might change and what impact that would have
P
ensions are important for all of us – but many of us don’t attempt to understand the intricacies of the system unless we’re near or at retirement age (and sometimes not even then!). One confusing phrase is the “triple lock” : put simply, this is the system currently in place that ensures the state pension increases every year in line with the cost of living. It was brought in to make sure pensions didn’t rise higher than general incomes or vice versa. In order to calculate the state pension increase under the triple lock, three measures are used: the Consumer Prices Index to measure inflation, the average increase in wages, and a 2.5 per cent rise. These three indicators (hence “triple lock”) are looked at and the state pension rises by whichever one is highest.
Triple threat
The triple lock system has been in place since 2010 and maintaining it was a 2019 “Recent Conservative manifesto pledge. But it’s times not a law and not something that has to be upheld. And recent times have have forced a rethink, meaning that currently forced a there is some debate about removing the rethink” triple lock. Because of the huge impact of the Covid-19 pandemic, which left so many people on furlough or out of work, the average wage increase
FOR Five reasons to keep the triple lock
1. The state pension is not that generous as it is. The average amount of basic state pension received is £96.86 a week. 2. The UK’s state pension is the 10th lowest of the 38 countries that form the Organisation for Economic Co-operation and Development (OECD). In Spain, for example, it replaces 82 per cent of income, and 78 per cent in Austria. 3. Removing the triple lock would affect younger people, who would need to start paying more into private pensions now. 4. In 1979 the earnings link that previously calculated the state pension increase was abolished, and the value of the state pension plummeted. The triple lock was established to rebuild that value; this has begun but experts say it may take decades before it is back to the level it was before. 5. Around 1.6 million pensioners in the UK live in poverty with incomes below 60 per cent of median household income after housing costs.
recorded as the economy starts to recover will be unnaturally high. Because of the triple lock, this rise would be the figure by which state pensions would have to increase. Forecasters at the Bank of England think that the average wage increase may be as high as eight per cent, which would be a welcome boost to struggling workers but an extremely large bonus for pensioners too. And Understanding pensions is essential with the economic pressure caused by the pandemic, some economists argue that the country would struggle to afford this pension rise. It’s a difficult balance to maintain, and there are arguments for both keeping and abolishing the triple lock. Here is Shire’s quick guide to help you understand the two sides of an important decision that may be made in the next month or two.
AGAINST Five reasons to abolish the triple lock
1. The rise of average wages at eight per cent is not a genuine one – and not felt by the working population. Many workers lost their jobs in the pandemic, while those on furlough lost 20 per cent of their wage. 2. When wages were static or fell in the pandemic, the triple lock meant pensioners still got their 2.5 per cent rise. 3. It will be expensive to keep the triple lock in place, at a time when we cannot really afford it. It is estimated that keeping it will cost £4 billion extra a year. 4. There are many poor pensioners but three-quarters of retired people are homeowners and often in homes bought cheaply years ago, while many young people are unable to own a home. 5. The pensions triple lock is seen as a vote-winner rather than a policy with genuine motive. Critics say the only reason the Conservatives are so committed to it is because they get three times more votes from the older generation than the young.
122 SHIRE MAGAZINE | September/October 2021
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