Ros Altmann: What next for the triple lock and pensioners?

• After the Lords vote to protect the triple lock state Pension earnings link, what happens next?
• Commons will debate the amendments the week after next giving a few days to add pressure
• It’s not too late for Government to change its mind and keep the triple lock, using an adjusted earnings figure lower than 8.3%
• If pensions rise by just 3.1%, there will be increasing pensioner poverty and MPs likely to face angry pensioners who feel abandoned while their household bills are soaring

MPs will debate the State Pension uprating Bill again in about ten day’s time, when they consider the cross-party Lords amendments on protecting the triple lock earnings link.  Most people think that MPs will just reject these amendments and vote again to make pensioners worse off in real terms next year.  I believe there is still a chance that, with sufficient pressure, the Government may realise its plans are unsound.

Looking after pensioners is part of the social contract of our country.  This is a point of principle – it is about what values our society considers important. It is also about trust and integrity, which is why we needed to make a stand about a policy decision that was made by MPs on the basis of misleading or flawed information.

Honouring Manifesto commitments. The Commons will consider the amendments the week after next. They still have a chance to honour the triple lock Manifesto commitment and preserve the important social security policy principle of protecting State Pensions against rises in earnings. The usual Average Weekly Earnings statistics produced by the ONS, which showed an increase of 8.3%, were inflated by last year’s labour market interventions, such as furlough. The underlying increase would be less than this, so it can be appropriate to adjust for the pandemic, but not to abandon the earnings link altogether. The Lords amendments expressly allow for adjustments, while protecting the triple lock commitment.  Even if abandon the earnings protection is supposed to be for just one year, the precedent it sets is that State Pensions are a valid target to raid when Government wants to find money.

There is a myth that pensioners are all pretty well off, and therefore they should not be badly affected if their pensions are cut in real terms for a year.  In actual fact, there are over 2 million pensioners in poverty and inflation has been soaring, especially for the basic essentials that pensioners spend most money on.  Therefore, it seems hard to accept that our country cannot afford to protect the lowest State Pension in the developed world, despite its promises just two years ago.

State Pensions are still below 1979 levels: In 1979, the Basic State Pension was worth over 26% of average earnings. In 2020, after many years of the triple lock, the basic State Pension (£137.60 a week) was only 19% of average earnings.  Even the full new State Pension (£179.60 a week) is less, relative to earnings, than just the basic State Pension was in 1979.  The poorest pensioners, who usually have no earnings related pensions to supplement the basic State Pension, can claim the means-tested Pension Credit. This was introduced from 2002 to try to alleviate rising pensioner poverty. But this Pension Credit Minimum Income Guarantee (£177.10 a week) also leaves millions of pensioners with inadequate incomes.

Pension Credit has never been part of the triple lock (although many people seem to be unaware of this) but it was always protected to rise in line with average earnings. The Government wants to sweep that protection away this year, but this would set a dangerous precedent and would increase the numbers of pensioners struggling to make ends meet.  Having studied pensioner poverty since the 1970s, I am convinced that dropping the earnings protection, even supposedly for just one year, sets a very dangerous precedent. Pensioners should not be left without the earnings protection they were told they could rely on.

Pensioner Poverty was already rising, even before the pandemic:  Official statistics show that pensioner poverty remains a significant social issue and has been increasing in recent years (see chart below). The Charity Independent Age points out that more than half of single pensioners live in fuel poverty, while 13% of older households are in extreme fuel poverty. Those numbers will undoubtedly grow if the Government insists on removing the triple lock and giving just a 3.1% rise.  In 2002, around 24% of pensioners were in poverty.  That fell to around 13% by 2012, but has been rising since then. In 2019, 16% of pensioners were in poverty and in 2019, it was 18%. https://www.gov.uk/government/statistics/households-below-average-income-for-financial-years-ending-1995-to-2020/households-below-average-income-an-analysis-of-the-income-distribution-fye-1995-to-fye-2020#pensioners-in-low-income-households

Astonishingly, the Commons voted to scrap important triple lock earnings link with little scrutiny.  Even though this affects millions of people andearnings uprating is the most important element of pensioner protection, this legislation passed through all the stages in the Commons in just a couple of hours, with very few MPs present.

MPs were told there is no alternative. Not only were MPs incorrectly led to believe there was no way to avoid taking away the triple lock, otherwise state pensions would have to rise by 8.3% ( costing over £5bn), they were also assured using cpi would still protect pensioners against rising living costs.  Both these assurances are false.

Firstly, the 8.3% figure does not have to be applied. The 1992 Social Security Administration Act, which the Government wants Parliament to amend, actually makes provision for the earnings statistics to be adjusted, if necessary.  Section 150A subsection (8) says that when reviewing how to uprate the state pension each year ‘the Secretary of State shall estimate the general level of earnings in such manner as he thinks fit’. 

Officials have warned of a legal challenge. Apparently Ministers are advised that, using an adjusted earnings figure, rather than the reported Average Weekly Earnings statistics for April – July each year, could leave the Government open to legal challenge, despite the 1992 Act’s wording. So, the Lords amendments address this as they expressly allow for the statistics to be adjusted for the pandemic impacts, so the risk of legal challenge should fall way.  For a legal challenge to succeed, someone would need to prove the figure used by the Government, instead of 8.3%, is irrational.  The DWP is, therefore, asking Parliament to accept that it cannot produce a reasonable adjusted figure to adjust for the pandemic. It claims there is no acceptable or universally agreed method of adjustment that would give a perfect answer – but perfection is not needed.  In the absence of an alternative measure that is ‘sufficiently robust’, the DWP has chosen not to do the work.   

It rather strains credulity that the entire army of statisticians and actuaries in the DWP, Treasury and all across Government cannot produce a reasonable adjusted earnings figure to uprate state pensions next year. But if they really are struggling, then both OBR and ONS statistics are available to them.  I am afraid this may be more about cutting pensions and using the money for other purposes, than concern for protecting pensioners as promised.

MPs were misinformed. When asking MPs to agree to abandoning the earnings link, the Minister opening the Commons debate on 20 September said:  ‘This Bill will ensure that a temporary statistical anomaly in wages does not unfairly track across into pensions, while also preserving the spending power of pensioners and protecting them from increases in the cost of living.’  And, summing up at the end, the Minister said the so-called ‘double lock’ of cpi or 2.5% ‘will ensure that pensioners’ spending power is preserved and that they are protected from the higher cost of living.’

Such assurances do not stand up to scrutiny. Even if they might almost have been believable at that time, since then it is clear that next year’s inflation outlook has deteriorated significantly and 3.1% is too low. In fact, September’s 3.1% cpi figure was itself distorted by the effects of the pandemic. The number was artificially lower as there were sharp year on year falls in prices for hotels and restaurants, due to the end of the ‘eat out to help out’ scheme last year. The Chancellor has also since admitted in his Budget speech that ‘inflation in September was 3.1% and is likely to rise further’ while the OBR publication said “we expect CPI inflation to reach 4.4% next year”, warning it could peak “at close to 5%”. It also added “And it could hit the highest rate seen in the UK for three decades”.  So, it is clear that the 3.1% cpi rise will not preserve pensioners’ spending power and it will be a cut in their real pensions.  MPs now have a chance to reconsider this decision and an opportunity to demand that the Government protects pensioners as they were promised, rather than removing their protection just as so many pensioners are facing a cost of living crisis.

The Budget also undermined the arguments for removing the triple lock earnings link. The Chancellor announced a 6.6% rise in the living wage to help families with the cost of living crisis and found money for huge additional spending or tax reductions.  These included reducing alcohol duties, lower air passenger duty for domestic flights and lower taxes on banks. The figures suggest pensions have been raided to pay for other spending priorities. 

Abandoning the triple lock for pensioners is the biggest spending reduction/cost-cutting measure in the Budget.  This move saves the Treasury £5.4 billion in 2022-23, £5.8billion in 2023-24 and £6.1billion in 2023-34.  Only the new National Insurance levy raised more money than this.  Pensioners are expected to accept a cut in their income and living standards just as inflation is taking off.

Chancellors have too often eyed State Pensions as a tempting target to raid when they need to find large sums of money. But this should not be about money – it is about people and the social welfare system.  It is about trust in politicians’ promises.  It is about millions of people who are often out of sight, but struggling in 21^st Century Britain on the lowest state pension in the developed world.  What does it say if we short-change the elderly to fund reductions in alcohol duty and bank taxation? What does this say about our country’s values? Surely we can do better than this. A decent society has a duty to look after its elderly citizens.  Especially after being elected with a clear mandate to do so.

It’s not too late. The Government has considered this to be a fait accompli, and perhaps the Whips will win the day, but if we don’t try there is no hope at all. Pensioners deserve better.