Wednesday, 15 February 2017

Who really benefits?

In yesterday’s post, I referred in passing to mathematically-challenged individuals who struggle to understand the difference between something which affects the average person and something which affects all people.  The context was assessing economic success, but that isn’t the only example that I can think of.  One which comes up regularly is the comparison of school spending per head between England and Wales.  It’s true that the ‘average’ gap is around £600 per head, but that gap is regularly misrepresented as meaning that all Welsh pupils are suffering because the expenditure on them is £600 less than it would be in England.
This story (which has appeared in a variety of publications in one form or another) shows another example of the same problem.  It is certainly true that, as people born in the ‘baby boom’ years (including myself, of course) reach retirement age, they are finding themselves better off, on average (that word again), than pensioners have ever been before.  And it seems that that means that the average (or more accurately in this case, ‘median’, which is not the same thing although the principle is much the same) pensioner income, after housing costs are stripped out (a far from insignificant adjustment, as the BBC Reality Check team notes, which appears to be being made in order to reach the desired conclusion) can outstrip that of working people.  That in turn has led to some people calling for either increased taxation on pensioners, or at the least, an end to the ‘triple lock’ basis for increasing pensions each year.
But ‘average’ and ‘median’ are not the same as ‘all’.  Whilst many newly-retiring people in the relevant age groups do indeed receive occupational pensions as well as the state pension, that isn’t true for all pensioners.  There are still plenty, even amongst those retiring now, for whom the state pension will be their only, or main, source of income post retirement.  And there are many still-living pensioners born before the relevant period who are still wholly dependent on their state pension.  Using an ‘average’ or a ‘median’ for the population as a whole in deciding the future of the triple lock would disproportionately impact those groups most dependent on the state pension.  It’s a poor basis for decision.  (And, as an aside, it’s also worth remembering that, because of the power of compounding over the long term, the chief beneficiaries of the triple lock aren’t today’s pensioners, but those who are yet to retire in the future – the very people who are being encouraged to oppose it.)
The organisation producing the latest report, the Resolution Foundation, describes itself as “a non-partisan and award-winning think-tank that works to improve the living standards of those in Britain on low to middle incomes”.  It’s a worthy aim in principle, but I wonder whether how genuine they are in that objective.  To me, an attempt to achieve that aim by reducing the rate of increase in the state pension looks like shifting income around between two groups of people in the low and middle income group, whilst ignoring the huge disparity between both of those groups, on the one hand, and the group with the highest incomes (regardless of age) on the other.  Whose interests are really served by encouraging low and middle earners in employment to think that their problem is caused by the share of income going to low and middle income pensioners rather than by the share going to the very rich?


Anonymous said...

You make some good points but I have to take issue with your claim that it is future generations is pensioners who will benefit from the triple lock.

The retirement age is a moving goal which increases every few years meaning that many people currently in work probably won't live long enough to receive a pension. Even for those who do, they fact that we will have fewer years is retirement means that we will receive less overall.

That of course assumes that the triple lock regime remains in place indefinitely. Given the trends of the last 40 years it will be reversed by the time we would benefit from it.

Anonymous said...

The Welsh Government site My Local School gives details of spend per pupil as part of the data pack relating to the recent categorization exercise. In Carmarthenshire the spend for secondary schools ranges from £3,584 to £5,432 per pupil.

John Dixon said...

Anon 16:59

It's a complicated calculation, but compounding really does have a huge effect over the long term. It's true that pension age is increasing, but then so is life expectancy. It's also true that some will never reach retirement age and therefore never claim their state pensions, but that's always been true. The question, for the purposes of this calculation, and taking into account the increase in life expectancy, is about whether the proportion of the population in that category changes. So, increasing pension age + increasing life expectancy can mean that overall pension years may not change as much as you suppose, although there will certainly be a 'blip' as a result of a sudden recent change in pensionable age (and nothing that I'm saying here should be taken as being support for that change, by the way).

I agree with your final point - I don't expect the triple lock to remain in place for long. But that's part of the point of the post - it's likely to be abolished because those who will gain most from it in the long term don't understand that, and are being persuaded that it's unfair in the short term.

Anon 17:43

Exactly - there's a huge variation within Wales (and even within counties in Wales), and using 'averages' to claim unfairness is missing the point.