State Pension Increase in April

in State

The start of the new tax-year is an important date for all of those who are wholly or partial dependent upon the State Pension to make ends meet. Traditionally the Chancellor has used the Retail Prices Index (RPI) as at the end of the previous September to set the increase. Were he to do so this year, that would result in an increase of 5%. At face value this is very good news for pensioners, given RPI currently stands at 0% and the Governments' favoured measure, the Consumer Price Index (CPI) is at 3.2%.

There are however many problems looming.

Firstly, there is no obligation for the Chancellor to increase the State Pensions in line with RPI, particularly in such difficult times. However, as there is a general election looming, it is highly unlikely he will exercise fiscal prudence and have the courage to implement a more modest increase and risk alienating the 'grey vote', irrespective of the long term damage this may have on public finances.

Secondly, if we assume that RPI stays this low through until autumn, then the measure for next years increase in the State pensions would be 0%. Clearly the Chancellor is not going to make much of that at present, though it will prove very difficult sell no increase in their pensions to the 'grey vote' just before the General Election in 2010. Will he have the courage at that time not to make an arbitrary increase to placate voters, even though it is not sustainable, in the bid to secure votes.

Thirdly, it is now common knowledge the public purse is in a desperately poor state, to the point where we are again highly likely to have to go cap in hand to the International Monetary Fund, (IMF) for a large bail out. As a consequence, the financial burden of such a large increase in the cost of State pensions, may not be sustainable, particularly if the IMF impose austerity measures as part of any conditional lending.

Fourthly, we cannot rely upon the necessary funding from the IMF to meet the country's requirements, as the IMF issued a plea for further funding only a couple of months ago, stating it only had about 6 months funding left in it's coffers. Given a number of the key historical contributors are now likely to be needing its help, it is difficult to see where the money is going to come from to meet all of the demands now being placed upon it. As a result the IMF is likely to have to impose strict rationing of funds tied to very strict budgetary impositions on the borrowing nations.

Fifthly, Given the commercial money markets have openly indicated they are not confident of the Governments long term ability to meet all of the current and future borrowing requirements it needs to make, thus they are unlikely to lend except at a significant premium to reflect the additional risk they are taking. Consequently, it is highly likely all areas of public funding will face severe austerity measures over the coming years. This will may include a cap on pension increases, significant public sector redundancies and a reduction in public services across the board.

Finally, In light of all of the above, it beggars belief, the Government has committed to re instating State Pension increase link to National Average Earnings. Quite how or who is going to pay for it, given this Government has already built up a # 10, Billion unfunded deficit in their contributions to the public Sector pension scheme, is a mystery to me. Even the evidence from the report produced by UNISON's own head of pensions, in July 2008 acknowledges that had the link between the State Pension and National Average Earnings not been changed to be linked to RPI by the Conservative Government back in 1980 the state pension at the time of writing their report would have been worth #143 instead of #90.70. At face value that would be a 57% increase in the cost to the State of providing those pensions.

The above is compounded further by the forecasted increase of those on pensionable age increasing from 11Million to 14 Million by 2020, (a 27% increase in only 11 years from now). Assuming we pro rate that liability and add that to the 57% increase above, that would be a compounded 100% increase in cost to the state of providing the state pensions.

If those in power were running a company, it would long since have ceased to trade. They simply must acquire the courage and integrity to make the sad but harsh decisions that are necessary to ensure our country does not become the bankrupt basket case they are rapidly driving us toward.

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Karl Lavery has 1 articles online

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State Pension Increase in April

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This article was published on 2010/05/23