Social Security (Up-rating of Benefits) Bill — House of Lords, 2021-10-26
Topic: Labor
Jean Lesley Patricia Drake (Labour, Centre-left): My Lords, I will speak to probing Amendments 2 and 3 in this group. The triple lock is not legislated for; it rests on a commitment given by successive Governments since 2011. However, indexing pensions at least in line with earnings is legislated for. Through this Bill, the Government are neither applying the triple lock nor the underpin of earnings indexation. Both have gone as a consequence of this Bill—albeit that the Government say that they will not do it next year It is not surprising, therefore, that the removal of both is causing concerns that the Bill is trailing the Government’s consideration of lowering the value of the state pension going forward. While recognising the anomaly in the data behind the 8.3% earnings figure, the pandemic will not account for all of that increase. The decision to raise the state pension by the consumer price index in response to the anomaly comes without any analysis of how that change might impact the value of the state pension in relation to actual earnings. In fact, the Pension Policy Institute has done such an analysis and, assuming that the CPI increase is of the order of 3%, which it is, the PPI’s recent analysis stated: "Increasing the State Pension by CPI means that overall, State Pensions will rise by less than the real increase in earnings over the past two years. An alternative approach would have been to consider the rise in earnings over two years to give a more realistic estimation of real wage increases without the artificial impact of the pandemic impact in the year on year earnings statistics. This would need a pension increase of 5.3% in 2022 to match the increase in earnings since the setting of the State Pension level in 2020. Increasing the State Pension by this amount would save £3.1bn in 2022" So, increases in pensions will not reflect the real rise in hourly wages over that two-year period—which rows against the clear intention of the underpin of earnings indexation that is in the legislation The PPI approach of considering earnings over two years would reduce much of the methodology challenge in establishing an adjusted earnings index for one year, which the Minister refers to as the Government’s main defence for the approach they are taking. In fact, we have not heard a proper explanation from the Government as to why they could not consider different approaches. Several could have been taken, such as looking at earnings over the two-year period. So can the Minister give a fuller explanation of why they cannot take a different approach to that contained in this Bill? How do the Government intend to address the fall in the value of pensions against earnings over the last two years The triple lock was intended to address the extended fall in the value of the basic state pension. As the Minister states in her letter of 25 October, following Second Reading, "the triple lock was introduced in order to boost the value of the basic state pension" It was to recover from those years of decline against earnings—a sort of accelerator, to get back to a reasonable comparative position With the Library’s help, I looked at the hypothetical value of the basic state pension and the pension credit as if they had been uprated in line with earnings, rather than the triple lock, since 2011. Currently, that triple-lock boost delivered a basic state pension of approximately £18 higher a week than it would have been if it had been indexed by earnings alone. When the Bill passes, in 2023 the basic state pension boost will fall to approximately £12 a week higher than if uprated by earnings alone. The pension credit minimum income guarantee, targeted on the poorest pensioners, is approximately £14 a week higher currently than it would have been if uprated by earnings alone. In 2022-23, it will be only £6.79 a week higher I am sure that the Government will produce more precise figures than mine, because their ability to do so is greater than mine, but what I am absolutely confident that they will not be able to contradict is that there will be a clawback from the cash value of the current triple-lock boost. The pension credit minimum income guarantee is targeted on the poorest pensioners and, as the noble Baroness, Lady Altmann, said, it is not uprated by the triple lock, although earnings uprating is legislated for. The Government have mitigated that omission by applying the underpin of a cash increase, to give what they feel is a fair increase, rather than conceding the full principle of the triple lock However, many older pensioners still face declining incomes, and women are particularly sensitive to changes in the state pension indexation. On average, women are more likely than men to have lower incomes at older ages: 60% of those in relative poverty over the age of 65 are women; and women are more likely to be eligible for pension credit—so there will be a direct gender impact if one starts to tamper with less generous indexation, and there is nothing about future accrual of pensions that suggests that that gender bias would not persist Pensioner poverty is rising, and we are now seeing falling life expectancy in areas with the greatest incidence of pensioner poverty. We have accelerated the state pension age; pensioner poverty is rising; and in those areas, life expectancy is falling. That trend was emerging before the pandemic—before anybody says, "Well, it’s the product of the pandemic", no, that trend was there. I am sure it has been accelerated, but it was there before So why are the Government not taking a different approach to the uprating of pension credit targeted on the poorest pensioners and applying a cash increase greater than the value of the uprating by CPI? There need be no complicating legal or methodological issues in doing so. There is a clear precedent for the Government choosing to apply a cash increase Some argue that the triple lock unfairly advantages older people and should be scrapped for reasons of intergenerational fairness. But not all older people are experiencing a higher standard of living—older pensioners even less so. In 2020, benefit income was the largest component of income for both pensioner couples and single pensioners, and nearly two-thirds of the total income for single female pensioners In fact, younger people arguably have more to gain from the triple lock than older people because, when the state second pension was replaced by the new state pension in 2016, which will apply to future pensioners, its full value then was set at around 24% of average earnings—and that is low in comparison with any other advanced economy. But that is the base on which one is looking to make private savings work. To achieve a replacement income in retirement of 45% for the average earner, privately saving 8% under auto enrolment, the new state pension needs to be nearer 30% of average earnings. The Government argued when they introduced the new state pension that it was set because it was part of a package, together with the triple lock and the accelerated increases in the state pension age, which have been banked Again, research by the Pensions Policy Institute indicates that, without the triple lock, it will be harder, at least until the new state pension rises above a certain level, for young workers to achieve an adequate income in retirement, because it is the base on which their private savings will assist in securing them an income in retirement, and the dominance of the role of the state pension in pensioner income will persist long into the future.