Thank you. 70yo here. Im always pleasantly surprised to get £1,000 a.month for doing nothing. I genuinely believe my generation has spent our whole lives 'never having had it so good' year on year. We had rock n roll, the pill, freedom of speech, economic growth, improved health and secutity the NHS, free university education. An easy comfirtable life. I'll happliy take a little reduction in that to help the poor kids who can't afford a roof over thier heads now and zilch possibility of continuing exponential economic growth in their futures.
Bit younger than you, but I completely agree. When we were working we paid for a smaller cohort of pensioners to have a pittance of a pension for a shorter time. The concept that we deserve a randomly generated increase vs average earnings paid for by the next generation is morally bankrupt.
From the Greens to Reform there is a cynical “keep the triple lock” fake outcry in the hope of being elected by the grey vote.
Whilst the triple lock benefits me I will not be voting for any party who seeks to preserve it.
That's survivor bias. I'm 80 and most of my cohort went out to work aged 15. And died before getting much in the way of a pension. Women had it even worse.
I was wondering what it would cost to increase the lower tax threshold to match the state pension each year? That way pensioners would never pay tax on the state pension and other tax payers, especially younger and lower-paid workers would benefit from a small annual uplift to the threshold.
Wouldn't a simple, and politically less costly, solution to the ratcheting be to just shift to a longer averaging window? Keep the triple lock, but calculate the CPI, earnings increase and 2.5% floor over a 5-year window. All the measures would shift closer together and the ratcheting would be much reduced. Spending would decrease over time, but the main point of the triple lock (to stop pensions falling behind inflation or earnings) would be maintained. Call it a "long-term triple lock".
The private part is a bit complicated by tax benefits associated w salary sacrifice and so on, right? Technically even the private pensions represent a loss of revenue for the state, which is equivalent to a subsidy in my opinion. Getting into that level of nitty gritty I assume overcomplicates the picture though, since I'm sure other countries have various fiscal incentives and special savings rules and so on.
Thank you from Oz. Such a wonderful clear analysis although I do love facts so I am biased. I do not understand what appears to be the prevailing clamour apparently from the well off to cut UK welfare spending when as far as I can see it is amongst the lowest of OECD countries. Better targeting and means testing may well be needed but large scale cuts , given the underlying systemic problems , would be punching down and make gnawing poverty so much worse. I would love to see the numbers on that.
Public pensions give everyone above a completely arbitrary age the right to legally extract money from everyone younger than them.
Predictable negative results on children are shown in Hannah's chart in footnote 1. Another predictable negative result is children of people who die young are denied part of their inheritance.
Regardless of any benefits for people above the completely arbitrary age, I know of no way to prevent these gross injustices other than to eliminate public, age-based pensions.
At last, comprehensive comparative data which is readily assimilated on an issue that features high on the agenda but is not explained by mainstream media outlets.
The whole point of the triple lock is ratcheting, so that's hardly an objection. The only problem with the triple lock is the lack of an explicit goal. If only we had agreed in advance that we would use the triple lock to get the state pension to a certain percentage of earnings and then keep it there.
This is all very interesting, but I always feel these discussions miss an important point: these are all political decisions, not economic ones and, as Alan Greenspan once explained to US Congress, a government with a sovereign currency (like sterling) can choose to pay all state pensions it wants because it quite literally creates all the money in an economy. It can't go bankrupt so discussions about "how can we afford it?" are somewhat moot. The only limitations are the amount of resources (goods, raw materials, workers) available within that economy.
It is indeed a growing problem around the world. Canada is preparing by increasing deductions form pay checks to cover it. The YEMPY (Year's Maximum Pensionable Earnings) is a number the government uses to calculate how much to take off. This number was also used (seemingly randomly) to calculate the pay out for many employer pensions. As the number goes up more money comes off our pay to fund future generations and as the number goes up the calculated value of employer provided pensions goes down. This has left some over funded and a nice windfall for employers. You are still lucky if your employer has a defined benefit plan but the amount you get is going to be much smaller than what you expected at the beginning of your career.
It will be a real challenge to stay elected while increasing taxes and decreasing government benefits. In Canada one government increased retirement age from 65 to 67 and then promptly lost the next election.
Should we delay pensions as we live longer? It coudl be very unfair to some, my dad passed at 62 and my mom wasn't healthy enough to work until 67 but some people collect until their 90's.
This is wonderful, Hannah! I was going to write something about this after seeing the interview with the person from the IFS on BBC breakfast (I can’t recall their name), but you’ve already gone and done much better than I ever could. Bravo!
There are two parts of the current arrangements that is being missed and that is that currently the state pension age is increasing and contributions have been increasing. The age at which you qualify for a state pension is currently increasing from 65 to 67 which must mean that the state is saving at least £20K per person from those who have yet to reach the new pension age. That in itself must be a large sum that will manifest in expenditure (or lack of it) over the next two years. Losing two years pension out of an current average of say 15 years down to 13 years is a considerable percentage lopped right off.
In addition the contributions of all workers in the last two decades have been increasing either to personal pension pots, public service pensions (civil service, NHS) or in National Insurance.
So despite the charts being interesting and important it is still missing a large part of the detail to make the case for change.
I’d be interested in knowing what proportion of UK workers do have access to the red private part of the pension system. Plotting it like this (blending private and state) is slightly misleading if this does not apply to the majority of workers.
Thank you. 70yo here. Im always pleasantly surprised to get £1,000 a.month for doing nothing. I genuinely believe my generation has spent our whole lives 'never having had it so good' year on year. We had rock n roll, the pill, freedom of speech, economic growth, improved health and secutity the NHS, free university education. An easy comfirtable life. I'll happliy take a little reduction in that to help the poor kids who can't afford a roof over thier heads now and zilch possibility of continuing exponential economic growth in their futures.
Bit younger than you, but I completely agree. When we were working we paid for a smaller cohort of pensioners to have a pittance of a pension for a shorter time. The concept that we deserve a randomly generated increase vs average earnings paid for by the next generation is morally bankrupt.
From the Greens to Reform there is a cynical “keep the triple lock” fake outcry in the hope of being elected by the grey vote.
Whilst the triple lock benefits me I will not be voting for any party who seeks to preserve it.
And unfortunately as a cohort acted in a manner that pulled the ladder behind them.
Thank you for having a sense of reality!
That's survivor bias. I'm 80 and most of my cohort went out to work aged 15. And died before getting much in the way of a pension. Women had it even worse.
I, too, was reading the news thinking SHOW ME THE CHARTS so thank you very much for this excellent analysis.
I was wondering what it would cost to increase the lower tax threshold to match the state pension each year? That way pensioners would never pay tax on the state pension and other tax payers, especially younger and lower-paid workers would benefit from a small annual uplift to the threshold.
Wouldn't a simple, and politically less costly, solution to the ratcheting be to just shift to a longer averaging window? Keep the triple lock, but calculate the CPI, earnings increase and 2.5% floor over a 5-year window. All the measures would shift closer together and the ratcheting would be much reduced. Spending would decrease over time, but the main point of the triple lock (to stop pensions falling behind inflation or earnings) would be maintained. Call it a "long-term triple lock".
The private part is a bit complicated by tax benefits associated w salary sacrifice and so on, right? Technically even the private pensions represent a loss of revenue for the state, which is equivalent to a subsidy in my opinion. Getting into that level of nitty gritty I assume overcomplicates the picture though, since I'm sure other countries have various fiscal incentives and special savings rules and so on.
Thank you from Oz. Such a wonderful clear analysis although I do love facts so I am biased. I do not understand what appears to be the prevailing clamour apparently from the well off to cut UK welfare spending when as far as I can see it is amongst the lowest of OECD countries. Better targeting and means testing may well be needed but large scale cuts , given the underlying systemic problems , would be punching down and make gnawing poverty so much worse. I would love to see the numbers on that.
Retain the triple lock to benefit poorer pensioners and get well off pensioners to pay NI which will recover the cost.
Easy way to do this is to merge Iincome Tax and NI.
At a guess the well off pensioners (like me), would pay an extra 8% on income over £12570.
This is a generational fairness.
Public pensions give everyone above a completely arbitrary age the right to legally extract money from everyone younger than them.
Predictable negative results on children are shown in Hannah's chart in footnote 1. Another predictable negative result is children of people who die young are denied part of their inheritance.
Regardless of any benefits for people above the completely arbitrary age, I know of no way to prevent these gross injustices other than to eliminate public, age-based pensions.
Rory Sutherland has some bright ideas about this...
At last, comprehensive comparative data which is readily assimilated on an issue that features high on the agenda but is not explained by mainstream media outlets.
The whole point of the triple lock is ratcheting, so that's hardly an objection. The only problem with the triple lock is the lack of an explicit goal. If only we had agreed in advance that we would use the triple lock to get the state pension to a certain percentage of earnings and then keep it there.
This is all very interesting, but I always feel these discussions miss an important point: these are all political decisions, not economic ones and, as Alan Greenspan once explained to US Congress, a government with a sovereign currency (like sterling) can choose to pay all state pensions it wants because it quite literally creates all the money in an economy. It can't go bankrupt so discussions about "how can we afford it?" are somewhat moot. The only limitations are the amount of resources (goods, raw materials, workers) available within that economy.
It is indeed a growing problem around the world. Canada is preparing by increasing deductions form pay checks to cover it. The YEMPY (Year's Maximum Pensionable Earnings) is a number the government uses to calculate how much to take off. This number was also used (seemingly randomly) to calculate the pay out for many employer pensions. As the number goes up more money comes off our pay to fund future generations and as the number goes up the calculated value of employer provided pensions goes down. This has left some over funded and a nice windfall for employers. You are still lucky if your employer has a defined benefit plan but the amount you get is going to be much smaller than what you expected at the beginning of your career.
It will be a real challenge to stay elected while increasing taxes and decreasing government benefits. In Canada one government increased retirement age from 65 to 67 and then promptly lost the next election.
Should we delay pensions as we live longer? It coudl be very unfair to some, my dad passed at 62 and my mom wasn't healthy enough to work until 67 but some people collect until their 90's.
This is wonderful, Hannah! I was going to write something about this after seeing the interview with the person from the IFS on BBC breakfast (I can’t recall their name), but you’ve already gone and done much better than I ever could. Bravo!
Thanks for this. It has really helped my understanding. Extra thanks for stepping outside your usual bailiwick :)
There are two parts of the current arrangements that is being missed and that is that currently the state pension age is increasing and contributions have been increasing. The age at which you qualify for a state pension is currently increasing from 65 to 67 which must mean that the state is saving at least £20K per person from those who have yet to reach the new pension age. That in itself must be a large sum that will manifest in expenditure (or lack of it) over the next two years. Losing two years pension out of an current average of say 15 years down to 13 years is a considerable percentage lopped right off.
In addition the contributions of all workers in the last two decades have been increasing either to personal pension pots, public service pensions (civil service, NHS) or in National Insurance.
So despite the charts being interesting and important it is still missing a large part of the detail to make the case for change.
I’d be interested in knowing what proportion of UK workers do have access to the red private part of the pension system. Plotting it like this (blending private and state) is slightly misleading if this does not apply to the majority of workers.