Markets Wrap: The Triple Lock, Bond Yields and Housing

SPEAKER_1 (0:02)

Bloomberg Audio Studios, Podcasts, Radio, News.

Merryn Somerset Webb (0:17)

Welcome to the Merryn Talks Money Market Wrap, where we talk about the biggest moves in the markets this week and what is driving them. I am Merryn Somerset Webb, UK Money Editor-at-Large.

John Stepek (0:26)

And I'm John Stepek, Senior Reporter at Bloomberg and author of the Money Distilled Newsletter.

Merryn Somerset Webb (0:32)

We're not at the Labour Conference, are we John?

John Stepek (0:34)

No, we've been banned.

Merryn Somerset Webb (0:36)

No, we haven't. We just went invited. It's different.

John Stepek (0:40)

I think that's called shadow banning these days.

Merryn Somerset Webb (0:43)

I think I probably was invited to sit on a panel actually about ages ago and I've forgotten. But it's been interesting, right? It's been interesting. And we're going to talk about that. We're going to talk a little bit about the bond market. We're going to talk about the triple lock, the triple lock, the triple lock. I mean, there's the little deck chairs in the Titanic, fiddling while Rome burns, isn't it? All this relentless fuss about the triple lock. I mean, I believe and have written that the triple lock is about UK pensions. By the way, those of you unfortunate not to be living from another country and you don't know about the UK's obsession with our state pension and with the triple lock, the way in which the pension is supposed to every year go up by earnings, inflation or 2.5%, whichever is the highest, which of course is outrageous. But our state pension was very low, is up quite a lot in real terms. And at the same time, we have introduced an auto-enrollment system, which means that everybody in work has the beginnings of quite a hefty backup in a defined contribution pension. So that's the background. The triple lock, there is a view, should no longer exist because it is no longer required. Pensions has gone from the group that most frequently lived in poverty in the UK to the group who least frequently live in poverty in the UK. So there's a case for saying this is insanely expensive. Do you remember in the beginning, it was supposed to only cost 50 million quid or so over however many years now, because billions and billions and billions. So here's one of the big ideas from our new Prime Minister, Andy Burnham.

John Stepek (2:11)

This big reform to the triple lock, which has probably been the most headline grabbing point that he made.

What they're doing is this, the way the triple lock has been set up so far means that the state pension will always rise faster than average earnings over the long term. So in the long term, what you're going to get is a position where the state pension as a percentage of average earnings keeps climbing. And whenever it first kicked off in 2011, the state pension as a percentage of average earnings, the state pension was still going up with inflation every year, but it had kind of collapsed to be in about 10 percent of average earnings. Now low after years of the triple lock is back to about 25 percent or 30 percent depending on which average earnings figure you use. The point is, it's back to pretty much the historic high, and it will go towards kind of record levels quite soon.

Merryn Somerset Webb (3:02)

And as I say, you have the auto enrollment as well. Whereas in the old days, you had the state pension and then some people had a DB, public sector workers had a defined benefit pension. They still do, by the way.

John Stepek (3:15)

And a lot of private sector workers.

Merryn Somerset Webb (3:17)

Yeah, and a lot of private sector workers. But if you didn't have a DB, you were reliant almost entirely on the state pension. So there were an awful lot of people for whom the state pension was it, was all there was. In the future, assuming you've worked and most people will work or most people should work, assuming you've done that, you will have backup in the form of your auto enrollment. So apart from anything else, the state pension's landscape in the UK has changed very dramatically since the days when the state pension was far from adequate. And you could argue it's far from adequate today if you had to live on it alone, but not that many people live on it alone, I hope.

John Stepek (3:56)

You don't have to live on it alone because the point is we've also got a welfare state that picks up after the people who do have to live on it alone. And so I think they may always find this slightly irritating because there's this constant reference to a group of people who live on the state pension just by itself. And this tends to be made by people who are not in that position. It's a long story short, it will now just go up with average earnings over the long run.