Former pensions minister Baroness Ros Altmann is leading a House of Lords campaign to get the government to re-introduce the triple lock on pensions this year, to protect the poorest pensioners.
In Tuesday’s debate in the House of Lords she is proposing amendments that with sufficient support would send this legislation back to the Commons. She says MPs need to think again as they were not given the correct information when they voted in the Commons to remove the triple lock earlier this year.
As she points out the ‘double lock’ will increase the State Pension by 3.1 per cent in April, but this is a real in income in terms cut, with Budget forecasts predicting inflation to average at 4 per cent in 2022.
She says a real term cut in the state pension breaks 2019 manifesto commitments to protect pensioners. Altmann points out that scrapping the triple earnings lock for this year takes over £5bn away from pensions next year and is the biggest cost-cutting measure in last week’s Budget.
She says: “Pensioners should not be used as a cash machine to pay for spending elsewhere, such as a lower bank levy or alcohol duty, especially as we face a cost of living crisis.”
“I believe the Government needs to think again because this will certainly not be enough to protect pensioners against rising living costs. When the legislation to scrap the triple lock is debated on Tuesday in the Lords, we have a chance to vote to keep the earnings protection promised to pensioners in every party manifesto.
“Society has a duty to look after its elderly citizens. Even increasing pensions by 5 per cent would still save around £3billion and protect pensioners in line with earnings.”
Altmann points out that the Office for Budget Responsibility forecasts are for CPI inflation to reach 4.4 per cent next year, and they warn it could peak at close to 5 per cent. The OBR said that price inflation was likely to be running at the highest rate in the UK for three decades.
Altmann adds that not all pensioners are well off and this will leave many struggling to afford their everyday bills. “Taking away proper protection for one year may seem alright if you believe the myth that pensioners are all pretty well off, but in the real world there are already over 2 million pensioners in poverty and the UK state pension is the lowest in the developed world according to the OECD.”
Altmann adds that MPs decision to scrap triple lock earnings link was based on false premise. “MPs were asked to approve this measure after being told the only alternative to taking away the triple lock would be to uprate state pensions by over 8 per cent, reflecting the ONS ‘Average Weekly Earnings’ figure for July. They were told this would cost an extra £5bn.
“It was on this basis that that Parliament decided to abandon the manifesto commitment to protect pensioners, and the legislation passed through all the stages in the Commons in 2 ½ hours, with very few MPs present. However, these statements misrepresent reality.”
She says it is “simply not correct” that the government would has to use the ONS Average Weekly earnings figures to uprate pensions, which would have pushed them up by over 8 per cent.
Altmann says this statistic has been used in recent years, but it would be perfectly in order to adjust this figure to take account of any upward bias caused by the exceptional effects of the pandemic on the labour market and the furlough scheme last year. She says this is provided for within the wording of the 1992 Social Security Administration Act.
Altmann adds: “In summing up MPs were told the so-called ‘double lock’ of CPI or 2.5 per cent ‘will ensure that pensioners’ spending power is preserved and that they are protected from the higher cost of living.’ But since then, next year’s inflation outlook has sharply worsened due to recent rises in fuel bills and much higher inflation expectations for food and utilities.”
Altmann says she is determied to try to ask peers to support amendments that would keep the triple lock while ensuring that the secretary of state can adjust for any upward distortions on earnings from the pandemic and so protect the poorest pensioners.
“I believe millions of pensioners deserve better treatment. It’s time for Parliament to stand up and protect good citizens. What are we there for if not to try to stop dangerous policies that are based on false information.”
However there were concerns that if this ruling is overturned, and the triple lock introduced this could raise questions of intergenerational unfairness. Many in the pension industry have called for new ways to calculate the earnings figure to protect the principles of the triple lock.
Aegon pensions director Steven Cameron says: “While an 8.3 per cent increase [based on unadjusted earnings figures] continues to look extremely generous, 3.1 per cent is now looking harsh against the broad acceptance we’ll see sharp winter rises in the cost of living as well as in heating costs which disproportionately affect pensioners.”
He adds: “For the last 11 years, the triple lock has granted state pensioners an increase of the highest of price inflation, earnings growth or 2.5 per cent. However, because of furlough related distortions to national average earnings, in its unadjusted form, the earnings component would have produced a massive 8.3 per cent increase. Granting state pensioners such a large increase would have represented a ‘pandemic windfall’ for them and would have raised questions of intergenerational fairness as it is paid for out of the National Insurance contributions of today’s workers.
“With the earnings distortions evident over the Spring and early summer, many pensions experts offered suggestions for a fairer approach. Rather than blindly follow the current formula, many suggested either smoothing out increases over a two or three year period or alternatively basing the increase on an earnings growth figure calculated by the official statisticians with the pandemic distortions stripped out.
“For many, the state pension is the bedrock of their retirement income and come next April, a 3.1 per cent increase may leave many feeling left out in the cold. Baroness Altmann may yet persuade the Government to look again at a fairer middle ground increase.”