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How pensioners are defrauded by the state


INFLATION steals from the people, and they would still be robbed even if annual inflation-linked increases worked perfectly.

The State Pension from April 14 this year will rise by 3.1 per cent, in line with the Consumer Price Index (CPI). The ‘triple lock’ promise made to pensioners in 2010 said that increases would reflect the highest of three measures: 2.5 per cent, CPI or National Average Earnings (NAEI).

1.    The Bank of England has a general inflation target of 2 per cent p.a. as measured by CPI, so clearly price inflation is getting a little out of hand. If we were on track at 2 per cent pensioners would benefit in real terms from the minimum 2.5 per cent element of the triple lock.

2.    Last year, the Government suspended the NAEI part of the guarantee for 2022-23, which would otherwise have triggered a pension increase of some 8 per cent following a higher rise in wage inflation owing to pandemic policies. Darby and Joan would have been drinking champagne and doing an arthritic dance in the street.

3.    So CPI it is, oldies. Setting aside quibbles about exactly how CPI is calculated, and whether RPI would be a more appropriate yardstick (the switchover of measures came in 2011, affecting social security benefits and public sector pensions), we note that the Government measures CPI in September but does not apply increases to pensions until the following April; a lot can happen between those dates. For example, we now read that the latest CPI figure for the last 12 months is 6.2 per cent, exactly double what we are to get from the Pensions Service. 

Yet even in an ideal world, where inflation was absolutely fairly and accurately calculated once a year and pension increases applied immediately, our bank accounts would still spring a leak.

The full rate of new State Pension will increase to £185.15 per week in April. For a couple each qualifying for that, the total income works out at £19,255.60 p.a. or a shade over £1,600 per month; let’s work with that round figure.

Now let’s assume that our couple spend every penny of their pension, but that prices go up another 6 per cent over the year, jumping suddenly by 0.5 per cent per month simple. Darby and Joan cope okay for April, but outgoings exceed income by £8 in May, £16 in June and so on. At that rate, it’s easy to show that they end the tax year £528 behind the line. Either they will borrow to meet the shortfall (and pay interest – credit cards are charging something like 35 per cent) or, more realistically, they will manage with less and/or lower quality in the way of goods and services.

The following April, under this fantasy arrangement, inflation indexing sets them straight again; but that £528 is never recouped; and they face another year of the same process of gradual immiseration; and it goes on for ever.

The Bank of England tries to justify this theft: ‘If inflation is too low, or negative, then some people may put off spending because they expect prices to fall. Although lower prices sounds like a good thing, if everybody reduced their spending then companies could fail and people might lose their jobs.’

Yet the BoE’s own calculator shows that during the century after Waterloo (1815), inflation ran at an average of -0.1 per cent (yes, negative) p.a.

However, the same calculator says that the cost of goods and services worth £10 in 1915 soared to £1,093.82 last year; even an apparently low average inflation rate of 4.5 per cent a year rots one’s wealth.

Debasing the currency by coin-clipping or forgery used to be high treason: the last woman to be burned at the stake for it was Catherine Murphy, at Newgate Prison in 1789. It is high time we tackled this official fraud, the monetary disease of the 21st century.

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Rolf Norfolk
Rolf Norfolk
Rolf Norfolk is a former teacher and retired independent financial adviser.

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