Labour should now look at the ‘triple lock’ state pension guarantee

Older people should of course expect a decent standard of living in retirement. But should they really expect a standard of living which outpaces that of the average worker, especially when the cost of proving it is likely to mean further cuts elsewhere in the welfare budget down the line?

Ed Balls 2

Since his interview yesterday on the Sunday Politics in which he said that pensions would be included in Labour’s proposed welfare cap, Ed Balls has been accused by the Conservatives of planning to cut the state pension.

Balls told Andrew Neil that:

“George Osborne is going to announce his [welfare] cap in two week’s time. I don’t know whether he will exclude pensioner spending or include it. At the moment our plan is to include it.”

Coalition business minister Matthew Hancock was the first government minister out of the blocks, tweeting:

“Amazing: Balls admits that when Labour say they will cap benefits what they mean is they will cap pensions of people who have worked hard.”

However despite the sound and fury emanating from the government, it is time both parties looked again at pensioner entitlements.

It’s understandable of course that politicians have been reticent to do so up to now when over a quarter of voters will be aged over 65 at the next election.

While the debate over spending shouldn’t be framed in terms of a race to the bottom between the young and the old, it’s got to the point where the social contract is so skewed in favour of older people that it’s their entitlements which should be looked at the next time the axe swings.

Today it takes a first time buyer saving half their annual income more than 10 years to put together a deposit for their first home, and in London that figure rises to 24 years. Young people are also much more likely than adults to be unemployed. In the last quarter of 2012, one in four young workers with five good GCSEs and 40 per cent of those with no qualifications were unemployed. Those who decide to go to university can expect to be saddled with debts that, in some instances, they may not pay off until they are in their 50s.

For those just entering the workplace, the minimum wage has already fallen behind inflation and some in the coalition have even called for it to be abolished altogether.

While younger people continue to struggle, older people who own property have seen their wealth increase dramatically in the past 20 years as house prices have exploded. Even those on the ordinary state pension have seen their income increase faster than wages due to the so-called ‘triple lock’ introduced by the coalition, which ensures that the state pension rises in line with whichever is highest out of prices, earnings or a base rate of 2.5 per cent.

As well as asking whether this is fair, it’s also worth considering if it is sustainable. Almost half (47 per cent) of UK benefit spending currently goes on state pensions – more than the £48.2bn the UK spends on servicing its debt. This is likely to increase as the population turns increasingly grey, with half of those born after 2007 expected to live to over 100. Between 2010 and 2030 the number of people aged over 65 will increase by 51 per cent.

The rate at which the population is ageing means that while there are now four people of working age supporting each pensioner, by 2035 it will be just two and a half, and by 2050 only two.

Ageing population 2

Ed Balls said yesterday that Labour would honour its commitment to the ‘triple lock’, meaning that the cost of providing the state pension will rise further in coming years because of this pledge and due to Britain’s population bulge.

If the economy enters a long period of stagnation similar to the one that gripped Japan 20 years, things could be even worse. As Andrew Oxlade writes for This is Money:

“…GDP would most probably stagnate or even shrink, year after year. Most welfare payments – those linked to inflation – would grow more slowly or could even be frozen. But the Government’s ‘triple lock’ promise would ensure state pension costs keep rising at 2.5 per cent – a compounding pledge that could become rapidly unaffordable.”

Older people should of course expect a decent standard of living in retirement. But should they really expect a standard of living which outpaces that of the average worker, especially when the cost of proving it is likely to mean further cuts elsewhere in the welfare budget down the line?

6 Responses to “Labour should now look at the ‘triple lock’ state pension guarantee”

  1. Sofia

    I’m afraid you’ve let your right foot slip forward on this one.

  2. LB

    You need to face up to the extent of the debts run by by Balls and Brown.

    http://www.ons.gov.uk/ons/dcp171766_263808.pdf

    2 years ago, 5,010 bn, increasing at 734 billion a year.

    Forget a cap, its going to be whole scale default.

  3. LB

    Older people should of course expect a decent standard of living in retirement. But should they really expect a standard of living which outpaces that of the average worker, especially when the cost of proving it is likely to mean further cuts elsewhere in the welfare budget down the line?

    ===========

    No. They should expect a pension proportional to what they have paid in.

    If a 26K a year worker had been allowed to invest their NI, they would have a fund of 627K pounds.

    That’s what they deserve.

    The problem is that Labour and the Tories have pissed it away, and not you can’t even pay the 152K cost of a state pension.

  4. citizenandreas

    Sofia – This is not right wing politics, it’s just maths. The triple lock means that at the very least pension will increase in line with wages, this means that even if the pensioner population was stable the pensions bill would grow as a proportion of national income, add to that the fact that the elderly population is rising and it’s clear the cost of pensions will go up. That means either higher taxes or cuts in other spending.

    Fact of the matter is that the triple lock is a time bomb, the coalition knew that it in time it would become unsustainable when they introduced it. The hope being that someone else would take the flack when it finally had to be repealed.

    James – I agree with your article, but if Labour is to tackle the triple lock, it needs to start by laying the ground for it, making clear that the policy is unsustainable and highlighting the cynical nature of it’s introduction.

  5. prasino

    Oh dear; how the debate has swung so far to the right it is difficult to comprehend this is on a blog called left foot forward. Do not fall into the trap of looking at government spending based on individual ministry budgets; do not fall into the micro-management in order to avoid major issues. The national debt is too high which means we pay too much current income in interest, even with the capacity to borrow at 2% over 30 years. So we can’t simply spend our way to nirvana. But do we feel in the 2020s for example we still need Trident? Who are we going to nuke? The London problems of housing? waht about using planning laws to prevent more development and regional policy to support jobs being set up in the north? Balls is meant to be looking at a housing policy instead of a housing benefits policy: good. Raise pension age? Well tell that to employers who lay off staff in the 50s. Why should other tax payers subsidise people in full time work and so subsidise employers? Come on, more thinking please!

  6. robertcp

    What should we get more worried about pensions or obesity? How long are the fat people going to live? As Keynes said, in the long run we are all dead.

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