Among the Money Marketing reporters I’ve learned to admire in the last couple of years, Lois Vallely is top of my list. Not only is Lois an elegant writer, her use of drop intros – a teasing, suspense-generating, sideways introduction to a story – is exceptionally good.
A superb example of a Vallely drop intro, as she first took us through her skills as a Texas Hold ’Em player, was her cover story for last month’s issue on the subject of the triple lock for pensions.
In recent weeks, both Tory and Labour parties have been trying to come to terms with the fact a policy originally intended to generate small above-inflation annual increases in the value of the state pension suddenly risk landing whoever is next in office with huge bills for two years in a row: 10.1% last year and, potentially, another 8.5% in April.
The real losers, as ever, will be pensioners
Lois is right: faced with that scenario, both prime minister Rishi Sunak and leader of the opposition Keir Starmer are desperately praying the other side cracks first and announces a “review” of the triple lock that will lead to it being neutered before its costs spiral out of control.
That way, whoever blinks first can be accused of a heartless attack on pensioners’ incomes. Meanwhile, the other side will say, while their opponent is behaving brutally towards the elderly, they cannot possibly make further commitments on the triple lock until such a review is completed – at which point we can safely assume it will be ditched.
Which would be a tragedy. Because if the triple lock is dumped, as many predict, it will mark the end of a brief period when, for the first time, millions of UK pensioners have dared to hope they wouldn’t be facing abject poverty in the final years of their lives.
Scrapping it would be to treat state pensions as bargaining chips in a game between political parties determined to look ‘responsible’ on public spending
For all the talk of how today’s retirees are lording it over every other age cohort in the country, the reality is that the full state pension is worth just £203 a week at present. That’s £10,500 a year. Plus a few hundred quid extra in winter fuel payments. That’s just over 25% of the mean average salary for full-time workers in the UK.
What many better-off commentators also forget is that inflation for someone who spends a disproportionate proportion of their income on food, meant extra annual costs of 13.6% in August 2023 compared to 12 months earlier, dropping to “just” 9.9% last month.
Compared with that, a potential 8.5% increase in the state pension next April will still mean a large cut in pensioners’ living standards.
The triple lock has allowed retirees to claw back at least some of the income disparity between themselves and those still in work
Ah yes, but what about the fact pensioners mostly own their own homes and don’t pay mortgages? Sure, 75% of over-65s have paid off their home loans. Yet ironically, the value of those same homes will either be eaten up by the cost of paying for care in old age, as successive governments endlessly delay adult social care reform, or their children will expect a large slice of that money as part of their inheritance.
What of occupational pension schemes? Shouldn’t they be counted along with the state pension? Well yes, except that official government census data in 2022 shows only 39% of private sector workers contributed to defined contribution pensions. The average value was £10,300.
For public sector workers in defined benefit schemes, the average participation rate was 82%, with an average value of £65,400 – even with employers’ contributions and staff paying in 10% of their incomes. That’s worth barely £2,700 a year, assuming you take no tax-free lump sum. Hardly what dreams are made of.
Whoever blinks first can be accused of a heartless attack on pensioners’ incomes
The triple lock is a poor substitute for a formal policy where pensioners’ incomes would be pegged to something like 40%, maybe even 50%, of the average annual wage. But it has allowed retirees to claw back at least some of the income disparity between themselves and those still in work.
Scrapping it without a viable replacement would be to treat state pensions as bargaining chips in a poker game between political parties determined to look “responsible” on public spending. The real losers in this scenario, as ever, will be pensioners.
Nic Cicutti can be contacted at nic@inspiredmoney.co.uk
