Commenting on the impact on different generations and their spending costs following today’s inflation announcement, Patrick Bloomfield, Partner, Hymans Robertson, says:

“Intergenerational unfairness will increase yet again following today’s inflation rise. As pensioner incomes are set to be boosted, with the state pension increasing by 3% next year due to the inflation hike yet workers are still seeing wage increases far below inflation at 2.1%¹.

“According to our analysis both pensioner and non-pensioner household will see the same increase in living costs.² But pensioners will be protected from feeling this pinch while average workers will really feel the squeeze.”

Commenting on today’s increase to state pensions and associated pension policy, Patrick Bloomfield, Partner, Hymans Robertson says:

“The income gap between pensioner households and working households has been narrowing over recent years, largely because of the triple lock pension guarantee. Today’s 3% increase to pensions is higher than the 2.1% boost to incomes that most workers can expect to see.  

“Whilst today’s 3% increase is much needed for pensioners who rely solely on their state pension, it also means that pensioners with private savings doing relatively better than workers this year. Interestingly, we’ve seen similar increases in the costs of living for pensioners and workers, so today’s pension increase will flow straight into the relative amount of spare cash in pensioners pockets each week.

“There has been much debate this week about the upcoming budget and what the Chancellor will do with tax incentives and pensions. The current generation of DB pensioners are a UK success story, which today’s policy should be seeking to emulate. 

“Some speculation this week has been of reducing pension tax incentives for workers in the second half of their career (which is when most people do the bulk of their lifetime saving) and redirect it to younger workers. This is an accident waiting to happen. Penalising the thrifty who want to diligently save through their working lives is something the Chancellor would flirt with at his peril.

“Coming back to today’s pensioners with private pension savings, any suggestion that they deserve lower indexation on their pensions would also be a disincentive to current savers. Three quarters of DC pension scheme members are under saving³. Tinkering with long term policy to balance any single year’s budget would undermine confidence and further reduce saving.”

^{1 ONS Sept 2017
2 Analysis of typical basket of goods included in CPI as used by non-retired household vs households on the state pension as stated by ONs
3 Hymans Robertson analysis shows that three quarters of DC pension scheme members are not saving enough for an adequate income in retirement}