Cost of living rise in pension goes against usual formula
A COST of living increase for the States pension was approved by the Assembly in what Employment & Social Security president Peter Roffey said was an unusual year, when the usual formula for calculating the increase would have led to a decrease had it been applied.
In normal circumstances, pensions would be increased by inflation (RPIX) plus a third of the difference between the rate of inflation and the increase in average earnings.
But this year the rate of increase of average earnings was below the rate of inflation – 4.9% and 7% respectively – and that led ESS to recommend a straight RPIX rise.
‘We think it would be perverse reducing the States pension in real terms in the middle of a cost-of-living crisis,’ he said.
Members also approved ‘noting’ that ESS would be looking at the long-term financial implications of having the double lock uprating policy formally established, which would see increases to the pension, and all other contributory benefits apart from long-term care, be calculated at either the usual rate, or at RPIX, whichever was higher.
Deputy Roffey said that this was something that was a well-established precedent, but not official policy.
In a short debate, John Dyke said he was not convinced at having the double lock policy brought in and if it ended up being applied year after year because inflation was high, a gap would open up between pensions and median earnings, and he wondered if the link to median earnings should be cut.
‘To lock something in that is probably an excessive burden on the income producers is probably not a good idea,’ he said.
ESS member Deputy John Gollop was also worried about pensioners ending up worse off and said he would have liked to see a triple lock approach, such as that in the UK (where the increase is whichever is greater of the rise in average earnings, the consumer price index or 2.5%).
‘He wants a triple lock – don’t we all, but I don’t think we can afford it,’ Deputy Roffey replied.
Policy & Resources president Deputy Peter Ferbrache asked if ESS would be looking to increase contribution rates mid-year if inflation went up by, say, 5% more than expected – the reply later was that Deputy Roffey did not think it would be able to do this.
And to Deputy Dyke, Deputy Roffey said that the situation he described would be a ‘really dreadful world’ of many years of inflation and the economy would be in a mess if that happened. ESS was not guaranteeing it would be implementing the double lock but would be looking at the issues.
All nine of the propositions were approved.
