A bottle of Veuve a day keeps the doctor away, or so Rishi Sunak’s rumoured 8 per cent state pension increase would have you believe. Following a disastrous year for tax-payers young and old, the Treasury has decided to hurtle head-long into stimulating the already well-to-do retired generation with the revenue accrued by the distinctly diminished bank accounts of the youth. Indeed, after 16 months of selfless and scarring sacrifice by young people on behalf of their older counterparts, the Treasury will continue to redistribute scarce pounds from the economically distraught to the pockets of the securely wealthy over 60s.
So, what is the Triple Lock on Pensions and why is it so unfair? The Triple Lock is a set of guarantees for pensioners about the security of this income. The pension will increase by either the price-inflation in the economy, the percentage increase in the average wage, or by 2.5 per cent – whichever is the highest marks the increase.
This means that pensioners can claim at maximum £9,339 per year, or £179.60 per week (which is almost 7 bottles of Veuve Clicquot Yellow Label per day) for the remaining 30 years of their life! Given that the average person eligible to claim the state pension has £300,000 in tangible wealth compared to the average person in their twenties having an average of £2,000 in wealth, this is supremely unfair. Indeed, 1 in 5 state pensioners are millionaires, whereas there are fewer than 500 millionaires under the age of 30 in the entire UK.
Champagne and politics aside, there are a number of economic arguments as to why we should scrap this ghastly annuity.
Firstly, at a cost of £101bn a year (with a national deficit of £204bn this year alone), our gargantuan pensions system is leading to more and more borrowing, and more and more growth reducing taxation to pay for it. It is not the pensioners who are paying for this, but rather their children and grandchildren in both the sum of their wage packets and the tax-swamped society they inherit. This pyramid scheme is terrible for growth!
Secondly, the age of retirement will not increase for another decade, which means tens of millions of potential income generating retirees will become economically inactive and a NET drain on the economy for everyone.
Finally, the loathsome state of the housing market is negatively affected by the guaranteed income provided by the rapidly increasing state pension. Not only does it remove from young people the affordability of a deposit, due to the increased taxation (of which the burden has doubled for income tax since 2000), but it also makes the housing market more rigid. Formerly, retired people would sell one or two properties as their pension would not cover their costs of living, freeing up housing to be bought by prospective tenants (i.e. young people). Now, with a much more rigid housing market, the government must spend yet more money in subsidising deposits.
Instead, a fairer system of a single guarantee would ensure fairness to both recipients and payers, as well as overriding the dreadfully painful negative externalities of the Triple Lock.
The workhorse of the economy has been flogged to the bone for the people who have had 40 years to build up their own reserves. A state pension should exist to cover the costs of living for those in need, not give budgetary room for a case of champagne a fortnight at the expense of a relatively impoverished generation.