Reality Check: Would leaving the EU be bad for pensioners?
- 27 May 2016
- From the section EU Referendum
The claim: Leaving the European Union would make pensioners worse off.
Reality Check verdict: The predictions are based on the Treasury's economic model, which may or may not turn out to be right. There are also things about leaving the EU that could be good for pensioners.
The government has said what it thinks would happen to pensioners if the UK left the European Union, and concluded that they would be worse off.
It is based on the report that the Treasury brought out earlier in the week, which predicted very bad things for the economy in the two years after a vote to leave.
The Treasury modelled a "shock scenario" and a "severe shock scenario".
The latest document reckons that somebody receiving the full basic state pension would be £137 worse off in real terms by 2017-18 in the former case and £142 worse off in the latter.
The basic state pension is protected by the triple-lock, which means it rises by inflation, average earnings or 2.5%, whichever is the highest.
So what would be best for people on the basic state pension would be for inflation to be low and earnings to be high, because then they get a bigger increase in the pension, while their spending power is not eroded by inflation.
The pension for 2016-17 went up by 2.9% while the Office for Budget Responsibility predicts that inflation will be just 0.9% over that period.
For 2017-18, the OBR reckons the state pension will rise by 2.5% while inflation will be 0.6%. In both years, the pension would rise by considerably more than inflation, increasing the spending power of pensioners.
The Treasury report predicted that there would be higher inflation and lower wages if the UK left the EU, so it is no surprise that could be seen as being bad news for pensioners.
The research goes on to look at what effect the predicted fall in share prices, house prices and company profits would do to the incomes of pensioners with savings, investments or annuities and found it would be negative.
So, in order to accept these figures, you first have to accept the economic model on which it is based, and we have discussed in the past the problems of economic modelling. This model is in the economic mainstream - almost all serious forecasts predict that uncertainty in the first two years would lead to problems for the economy.
But actually, the impact on pensioners is somewhat harder to predict. For example, leaving the EU might well lead to an increase in the amount the government has to pay to borrow money, which should in turn increase the rates offered for the annuities that provide incomes for people who have saved for their retirement.
Similarly, if inflation rises post-Brexit then the Bank of England might have to raise interest rates, which would be good news for pensioners with savings.