The recent claim by Rachel Reeves regarding a substantial increase in pensioner income has come under scrutiny. The Labour Party's assertion that retirees will be £1,700 better off by 2029 fails to account for several crucial factors, according to expert analysis.
Rachel Reeves, in her capacity as Shadow Chancellor, stated in The Telegraph that "The Full New State Pension alone will be worth around £1,700 more by the time of the next election." This statement was made in the context of defending the decision to means-test the winter fuel allowance, citing the need to protect the triple-lock policy.
The triple-lock, introduced in 2010, guarantees that state pensions increase annually by the highest of wage growth, inflation, or 2.5%. While this policy has indeed bolstered pension growth, the reality of its impact is more nuanced than the headline figure suggests.
Experts point out that the £1,700 figure, based on Office for Budget Responsibility (OBR) wage growth forecasts, doesn't account for inflation. Jonathan Cribb of the Institute for Fiscal Studies (IFS) explains that approximately £1,050 of the projected increase merely keeps pace with expected inflation, resulting in a real-terms increase of about £650.
Moreover, the claim overlooks the disparity between different pension rates. The full amount applies only to those receiving the New State Pension, introduced in April 2016. Approximately 8.5 million pensioners on the older basic state pension system will see a smaller increase, estimated at around £1,300 over the same period.
"£250 of the increase was just allowing pensioners to stand still"
The impact of taxation further complicates the picture. With the personal allowance frozen at £12,570 until 2028, more pensioners will find themselves paying income tax as their pensions rise. Sir Steve Webb, now a partner at Consulting LCP, estimates that 340,000 pensioners will enter the tax system next year alone due to this fiscal drag effect.
Despite these caveats, the triple-lock policy has provided significant protection for pensioners during periods of high inflation. The Resolution Foundation notes that between 2010-11 and 2023-24, the state pension value increased by 60%, outpacing average earnings growth of 46%.
It's worth noting that the UK state pension system, which dates back to 1908, has undergone numerous changes. The current system, while providing essential support for over 12 million recipients, still places the UK among the lower ranks of state pension provision in developed countries.
As the UK grapples with an aging population and increasing pressure on the pension system, accurate representation of policy impacts becomes crucial. While the triple-lock has undoubtedly benefited pensioners, the real-world effect of pension increases is more complex than single-figure projections might suggest.