It was being reported this weekend that the UK Government is considering breaking a manifesto pledge on the triple lock for state pensions. The triple-lock was introduced in 2011 by the Conservative-Liberal democrat coalition government to check the decline in the real value of the state pension. Under the triple-lock, the UK’s state pension rises by a minimum of either 2.5%, the rate of inflation or average earnings growth, whichever is largest. In 2019, the Conservatives election manifesto said that they would keep the triple lock, which retains the value of the state pension ands also gradually increases its value in line with the UK economy.
Depending upon the circumstances, the UK’s 12.7 million retirees receive a state pension of between £134.25 and £175.20 per week – i.e. in the range of £7,000 and £9,110 a year. In comparison, the national minimum wage for someone over the age of 25 is £8.72 per hour i.e. around £17,000 a year. Many retirees therefore are living on almost half of the minimum wage.
The UK state pension is around 29% of average earnings, the lowest amongst industrialised nations, compared to the average of 63% in OECD countries. One method used by the OECD to compare the value of state pensions across the world looks at Pension Replacement Rates. This measures income from State Pension as a percentage of people’s pre-retirement take home pay. Figures from the OECD Pensions at a Glance for 2019 put the UK at the bottom of the table on this measure.
The proportion of retirees living in severe poverty in the UK is five times what it was in 1986. This is despite the UK requiring employees to save for their retirement through work related pension schemes. Inevitably, low wages have had the result that there are low savings made via private pensions. This has meant that for poorly paid employees, the state pension remains likely to be the biggest source of income in their retirement.
The trigger for possible abandonment of the triple-lock is the current furlough scheme under which the government is paying 80% of wages, up to a maximum of £2,500 a month, for around 9 million employees. When the scheme ends, and employees return to their jobs average earnings may dramatically increase which would trigger a big rise in state pension. It is claimed that removing the triple lock could save the government £10bn over 48 months. Although this sounds a lot, last year the government provided a subsidy of £7.1bn to privatised railways companies.
A big rise in the state pension in line with expected post-COVID wage rises could dramatically reduce pensioner poverty. Removing the ‘triple lock’ makes this a lot less likely.
We could afford to keep the triple-lock in place. The state pension being paid out of the UK’s National Insurance Contributions (NIC) which are accumulated in the National Insurance Fund (NIF). On the 31st. March 2019, the NIF had an accumulated surplus of £30bn. Maybe it is time to start spending some of this surplus. HM Revenue and Customs (HMRC) also admits that it fails to collect around £34bn-£35bn each year due to tax avoidance, evasion and errors. Other studies put the amounts at between £58.6bn and £122bn a year. A focus on tax avoidance/evasion could easily raise plenty to provide decent pensions.
Rather than damaging an already poor state pension scheme, the government needs to ensure that eradication of poverty and a decent pension are part of the UK’s recovery plan. We need to take action now to ensure that current and future UK pensioners do not continue in potentially worsening poverty.
It’s time to write to your MP’s.