It’s all about “fairness,” the Chancellor said, but the question is who determines what is fair and how that conclusion is reached.
The point under consideration is the debate surrounding the triple lockdown of state pensions, which the UK government says could be out of balance to avoid a record hike in payouts next year. The implication is that – like the Covid restrictions which have taken the biggest toll on young people to protect a predominantly older population who are most susceptible to the virus – one generation is once again footing the bill for another who is already to a large extent financially secure.
To recap, the triple lockdown was introduced in 2010 by the Tory-Lib Dem coalition government and remained a pledge in the Tories’ latest manifesto ahead of the 2019 election. It ensures that state pension payments will increase every year. 2.5% year, inflation rate, or increase in average income, whichever is greater.
The aim is to ensure that the value of pension payments is not eroded by the rising cost of living, as has happened for much of the three decades from 1980. In 2010, the pension State base amounted to only 16.3% of the average salary.
This has improved since the introduction of the triple lockdown five years ago, but the basic pension still only accounts for a meager 19% of income, while the new public pension introduced in 2016 accounts for 24.8% of income. the average. The prospect of a record rise brought on by the aberrations of the pandemic is undoubtedly welcome among those who depend on these incomes.
READ MORE: All Work and Low Pay: The Cost of Working Poverty
Job losses during the pandemic were highest among the lowest-paid occupations, decreasing their weight on average earnings. At the same time, the return of the highest paid professionals from leave – when they were receiving 80% of their salary – to full-time work has further contributed to what has been described as an artificially high increase in income.
Current figures from the Office for National Statistics (ONS) show that excluding bonuses UK annual earnings rose 7.4% in June. On that basis, forecasters from the Office for Budget Responsibility (OBR) predicted in July that retirees could see their payments increase by up to 8% from April of next year.
The OBR says it could cost an additional £ 3bn per year, which has raised considerable concern over public finances already strained by the Covid crisis.
Speaking last month in an interview with BBC Breakfast, Rishi Sunak hinted that such a steep increase would not take place. Asked whether this could happen as universal credit increases are taken away from the poorest, the chancellor said he “recognizes people’s concerns very well.”
“What I would say is that the numbers you mention at this point are speculation because we don’t actually have them yet,” he said. “It happens later, but I recognize the concerns people have about it.
“I think these are very legitimate and just concerns to raise, and what I would say is when we look at this properly at the appropriate time, [fairness] will absolutely be the driving force behind what we do, and we want to make sure that the decisions we make and the systems we have are fair to both retirees and taxpayers. ”
Left to think about how this might translate into reality on the ground, some have speculated that there might be a one-year suspension of the earnings inflation element of the equation, or that the “distorted data” of the pandemic could somehow be suppressed to create a more realistic measure of underlying earnings growth. Another suggestion was to base the increase in pensions on a two-year average of wage growth or inflation, which would roughly halve the amount collected under the triple lockdown.
Such solutions would naturally seem reasonable to young workers whose job prospects have been hit hard by the pandemic and who pay state pensions through their national insurance contributions. With doubts lingering over whether the system will still be there when they reach retirement, today’s triple foreclosure looks like a mandatory investment with little return.
Yet the fact remains that at less than a quarter of average incomes, the UK pays one of the worst state pensions in the developed world. The new state full pension for those who retired after April 2016 is £ 179.60 per week, while the state basic pension for older retirees is £ 137, £ 60.
And while some retirees have very good incomes, millions are not. While it is widely believed that retirees live in homes they have already paid for, ONS figures show that almost one in five (17%) is in fact renting. More than half of them – 58% – have annual housing costs of £ 6,000 or more, accounting for almost two-thirds of the roughly £ 9,360 annual income from the new state pension .
READ MORE: Code Red and Renewable Gold Rush merge into a green bubble
An increase of around 8% would add around £ 14 more to the state’s new weekly pension, bringing the total to around £ 194. This may not seem like much to the wealthy, but to those who depend primarily or only on a state pension – the majority of whom are women, as they tend to have less private retirement income – such sums can be crucial.
This is yet another facet of the intergenerational equity feud that has become an increasingly common topic of discussion, with young people focusing on precarious employment and housing while their elders worry about increasingly inadequate social protection systems.
Standard of living challenges affect different generations in different ways. Changing technology, changing economic circumstances and the vagaries of war or pandemics ensure that no age group will encounter the same difficulties.
Yet no one would advocate rationing today’s children as a way to level the playing field with those who grew up during World War II. Nor will we see any pressure for those who have received university scholarships in recent decades to return them in return to those who are now hoarding loans to finance their studies.
The triple lockdown debate risks fueling the flames of an intergenerational battle that benefits no one, especially given the likelihood that public pensions will become increasingly important as access to good pensions is business continues to decline. None of this is “fair” to anyone, and the solutions will not be found in the midst of a barrage of finger marks.