Just now, there is no such thing as good news for the government. When the latest wage data was published on Tuesday, showing that living standards are finally rising, the focus was immediately on next year’s increase in the state pension and the cost to the public finances. And rightly so. An 8.5 per cent increase (the rise in average earnings) will cost £2bn more than had been budgeted. In part, this is because of one-off, unconsolidated bonuses to public sector workers which have distorted the calculation.
This has provoked a wider debate on how we calculate state pension increases. Since 2010, they have increased by the higher of earnings, inflation or 2.5 per cent – the “triple lock”. In good economic times, inflation might be around its 2 per cent target and earnings growth at (or a little higher than) 2.5 per cent. All very straightforward, pensions retain their relative value compared to earnings but the increases are broadly affordable.
Content from our partners
