Quote:
Originally Posted by Paul
If wage increases start to go up, inflation normally follows suit.
So while there may be a delay, it probably wont have as big an effect on pension rises as some think.
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But that's what makes the triple lock so expensive because the effect compounds every year.
Inflation goes up, and the pension goes up to match it. Everyone agrees this is fair, because otherwise pensioners get poorer over time. The problem is wages don't rise straight away. They catch up a year or two later. When they do, the pension gets another increase to match the wage rise. Not only that, but it's a % increase on the amount that's already been pushed up by inflation.
So prices go up once, and wages go up to catch up, but the pension gets both. And it never goes back down, so the next increase starts from that higher amount too.
Say the pension is £200 a week. Inflation hits 10% but wages only go up 5%. The pension goes up by the higher one, so it's now £220. Happy days.
But then next year wages catch up and go up 10%, but inflation has dropped back to 3%. The pension goes up by the higher one again, so now it's £242.
If the pension had just followed inflation, it'd be £226.60. If it had just followed wages, it'd be £231. Instead it's £242. That's £800 a year extra per person. I think we have 12 million pensioners, so that's £10 billion extra a year the government has to find.
Keep doing this year after year, and it just rises very quickly. This isn't even talking about the 2.5% minimum.
It was never, ever, going to stay long-term.