As usual with Budgets, it is only after trawling through the Red Book and other documents that the reality emerges from behind the razzmatazz.
Tucked away in the fine print of Rishi Sunak’s offering is a bombshell, as it sets out the damage that will be done by suspending the state pension ‘triple lock’.
This move, first announced in September, breaks a manifesto promise and will cost pensioners an average of £2,600 each over five years. It’s a saving of £30.5billion for the Treasury, but at a big loss to pensioners.
Running on empty: More than two million pensioners in the UK live in poverty
The triple lock stipulates that the state pension must rise by the greater of average earnings growth, consumer price inflation or 2.5 per cent. The excuse for breaking it is that earnings have gone up by around 8 per cent, making it unaffordable.
This is a huge red herring. Whilst it is true that the earnings figure is distorted by Covid and does not reflect a genuine rise in living standards amongst people of working age, it is bogus to argue it justifies breaking the earnings connection, even temporarily.
There is nothing obliging ministers to use the pandemic-swollen earnings number. They can adjust for Covid effects, which would be a far better solution.
Are we really to believe that the Office for National Statistics is not capable of producing a rational estimate on which a fair uprating could be based?
This would be an elegant solution to keeping the earnings link while avoiding a bloated increase. Undermining the triple lock just as inflation takes off, as it is predicted to do, will be harsh on pensioners.
Retired households tend to be harder hit than younger ones when prices and utility bills start to rise. And we have been here before. In 1979 the earnings link was severed by the Thatcher administration.
Then, it led to a significant decline in state pensions relative to working age incomes and a spike in poverty among the retired. George Osborne introduced the triple lock a decade ago to put that right.
Yet state pensions today are still below their 1979 level relative to earnings and are also low compared with the average level in OECD countries.
The real fear is that scrapping the earnings link, supposedly on a short-term basis, sets a dangerous precedent. Many will worry it is a Trojan horse, and that Covid has provided a convenient justification for those who are itching to get rid of it. There is a narrative that the retired have done better than working age families. But not all pensioners are comfortably off: the baby boomers gleefully burning their kids’ inheritance are a minority, if not almost entirely mythological.
More than two million pensioners live in poverty. Nearly a quarter rely on means-tested benefits. Almost a million who should receive pensions credit are missing out.
Many retirees do have private provision although final salary pensions, which offer some safeguards against inflation, are a dying breed.
Private pensions now are largely tied to the stock market, and the pot can deplete over time. As for annuities, rates are low and protecting against rising prices is expensive. Ditching the triple lock would hurt younger generations because when they come to retire, they too would receive an inferior State pension.
Baroness Altmann, a former Conservative pensions minister, is campaigning to stop the move. As she argues, ending the lock would be a betrayal of current and future pensioners and an attack on some of the poorest elderly people in the country.
