From the TUC

State pension increases – we got our sums wrong

29 Jun 2010, by in Pensions & Investment

Last Saturday I had a post called state pensions will be cut by the budget.

However Nigel Hawkes from Straight Statistics has kindly pointed out an error. In working out the indexing figure for the state pension in 2012 I forgot the 2.5 per cent minimum uprating – I used the CPI figure of 1.9 per cent instead.

This does not make the claim in the headline wrong. The state pension will be lower under the new system in both 2012 and 2013, but the difference is much smaller. It’s right that I should ‘fess up and admit my mistake, and no doubt provide some amusement for our less sympathetic readers.

Here is a new table (the previous post explains what it means):

Earnings(Treasury forecast) RPI (Treasury forecast) CPI (Treasury forecast) minimum increase under triple lock Single pension Single pension uprated by RPI only
uprated by new triple lock
£97.65 £97.65
2011 1.9 3.2 2.4 2.5 £100.77 £100.77
2012 2.3 3.2 1.9 2.5 £103.29 £104.00
2013 3.8 3.3 2 2.5 £107.22 £107.43

It’s inevitable that we do make mistakes from time to time, particularly when we are trying to respond quickly. But when we do, our policy is to admit that and put it right. So here’s my chin. I’m ready to take it.

There is another issue that has occurred to me as I;’ve had to go back and take a closer look at the figures.

Pension uprating occurs in April but is based on the previous September’s figures for the various inflation indexes. The Treasury does not predict what these will be simply a figure for the 4th quarter. In the earlier table I uprated the 2012 pension by the 2012 inflation figures. But it’s better to do this by the 2011 figure. Again this makes no difference to the argument, but was a bit sloppy.

So if I were doing this post again with more time and fewer mistakes I would change two things:

  • use the 2010 figures for the 2011 uprating figure, and
  • compare the coalition’s triple lock with CPI as the price indexing figure with a triple lock with RPI as Labour planned.

Why can we say this about Labour’s scheme? It has been all-party consensus since the Turner Commission to restore the earnings link, and it was included in one of the previous government’s Pensions Acts. The 2.5 per cent minimum uprating was inherited from Labour. (This was their response to the paltry 75p pension increase that caused them such difficulty.)

So here is a new table which I’ve taken a few years more forward using all the data in table C2 of the Budget Red Book:

Earnings(Treasury forecast) RPI (Q4 Treasury forecast) CPI (Q4 Treasury forecast) minimum increase under triple lock Single pension Single pension uprated by CPI triple lock cumulative annual difference
uprated by RPI triple lock
2010 2.1 3.7 2.7 2.5 £97.65 £97.65 0
2011 1.9 3.2 2.4 2.5 £101.26 £101.26 0
2012 2.3 3.2 1.9 2.5 £104.50 £103.79 £36.86
2013 3.8 3.3 2 2.5 £107.85 £106.39 £112.68
2014 4.4 3.4 2 2.5 £111.95 £110.43 £191.38
2015 4.4 3.5 2 2.5 £116.87 £115.29 £273.55
2016 £122.01 £120.36 £359.33
number in italic is CPI index factor
number in bold is RPI index factor

There is still a difference between the two figures – though the effect is not quite as big as I originally thought.

We’ve always been clear that restoring the link to earnings is progressive – and while the one thing we know for sure about these forecasts is that they will be wrong – the table does show that the Treasury expects this to make a significant difference after 2013. But before that the link to CPI is bad news for pensioners, and any loss made in a year will roll over into future years. (RPI can be lower than CPI but this is unusual and quite likely to be in years when one of the other triple lock figures will be used for uprating.)

And I’ve learnt once again something I remember my teachers saying to me rather often: more haste, less speed.

3 Responses to State pension increases – we got our sums wrong

  1. State pensions will be cut by the budget | ToUChstone blog: A public policy blog from the TUC
    Jun 29th 2010, 2:50 pm

    […] Update: The calculations in the original post below contained a mistake.  I do self-criticism and update the figures here. […]

  2. Tweets that mention State pension increases – we got our sums wrong | ToUChstone blog: A public policy blog from the TUC — Topsy.com
    Jun 29th 2010, 5:18 pm

    […] This post was mentioned on Twitter by ToUChstone blog, John Belford. John Belford said: RT @touchstoneblog: State pension increases – we got our sums wrong http://bit.ly/cEFGgD […]

  3. Chris Maddock
    Jul 8th 2010, 2:05 pm

    HI

    Sorry I’ve got to this a bit late, but you say above: “Pension uprating occurs in April but is based on the previous September’s figures for the various inflation indexes. The Treasury does not predict what these will be simply a figure for the 4th quarter. ” But what about Red Book (Budget 2010, 22 June) Table C5 8th row of data? Though even if I’ve read it right, the authority of OBR seems to be on the slide.