The government’s announcement that state pensions would be increased fully in line with inflation next year seems to have sparked controversy.
I believe those who suggest it is wrong to give pensioners full inflation protection next year, just because public sector workers may get lower rises in current negotiations, are overlooking some essential realities.
Pensioners were promised triple lock safeguarding for their state pensions. They were assured in the Conservative election manifesto that pensions would increase in line with the higher of rising prices, earnings or 2.5 per cent.
However, as earnings inflation was reported as 8.3 per cent partly inflated by post-Covid effects, the government broke its pledge and suspended the earnings link, passing legislation to increase payments by just 3.1 per cent.
This reflected the artificially low September CPI figure, also distorted, but downwards, by the pandemic. It was clearly too low to reflect coming inflation.
The October energy price cap increase was already announced and it was clear that this would be insufficient to offset rising living costs for 2022-23.
Many pensioners are now battling cost of living rises while trying to live on the lowest state pension in the developed world.I led a House of Lords amendment, with cross-party support, to use an adjusted earnings figure and keep the triple lock, but this compromise was unfortunately rejected by the Commons.
Even the poorest pensioners, who rely on means-tested pension credit that had always been uprated by earnings growth, were stripped of this protection. As a result, more pensioners have been plunged into poverty.
It was surely wrong that pensioners received only a 3.1 per cent increase for the year to April 2023, despite earnings and price rises rocketing.
CPI inflation is now around 9.1 per cent and expected to rise further. Earnings growth, including bonuses, is 6.8 per cent and average workers’ pay is around £26,000 a year – far higher than the state pension.
Yet, many commentators seem to believe the country cannot afford to pay full inflation uprating for next year. Let me set out some of the important reasons why I believe this is wrong.
After struggling through the pandemic, many pensioners are now battling cost of living rises while trying to live on the lowest state pension in the developed world.
The national insurance pension is not generous at all, with the full new state pension paying only around £9,500 a year – and £7,400 if you retired before April 2016 on just the basic rate.
The UK system is based on the idea of paying a minimal state pension, and incentivising people to build private pensions to supplement this basic amount. However, millions rely solely on the state pension and the poorest, typically women and those who were in low-paid careers, often had no chance to build private pensions.
Yes, some pensioners are very well-off, but society must not penalise the poorest just because others have more.
Many pensioners rely mostly or completely on their state pension payments in later life, so ensuring their payments keep up is vital. They do not have an option to increase their incomes in future or work more to earn extra to pay their bills.
Pensioners typically spend a much higher proportion of their income on the basic essentials like food and energy, which have increased most in price. The wholly inadequate 3.1 per cent rise has left millions struggling to make ends meet, resulting in rising pensioner poverty.
Those who suggest it is unfair to do this when public sector pay may not rise by as much overlook the fact that public workers’ pensions are guaranteed to increase fully with inflation.
Many pensioners rely mostly or completely on their state pension payments in later life.It is therefore only right to offer at least equal protection for all other pensioners, millions of whom have no extra pension income at all.
Furthermore, the public sector workers earn far more than the state pension and their guaranteed lifelong fully inflation-proofed occupational pensions are paid in addition to the state pension itself.
Private sector pensions generally have inflation increases capped at 5 per cent or 2.5 per cent or there is no index-linking at all.
The government has, commendably, introduced emergency extra help for pensioners this year in the form of one-off payments, which are welcome, and it is also right to reassure them they will have full inflation increases from next April.
After letting them down so badly this year, it would be unforgivable for pensioners to be short-changed again.
Baroness Ros Altmann is a pension policy expert and former pensions minister
