Labour manifesto: Labour commits to restore earnings link from 2012
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The Labour Party has committed to increasing the basic state pension in line with earnings from 2012 rather than waiting until 2015 when it is required by law.
Both Labour and the Conservatives had been aiming to raise the state pension in line with earnings from 2012 but were only committed to doing so from 2015.
Labour’s manifesto, released today, confirms the change will take place in 2012.
Towers Watson says the Government will lose out on around £2bn a year by the end of the next Parliament and around £4bn a year in the long term by delaying it to 2015.
When first announced in May 2006, the Government said restoring the earnings link by 2012 was “subject to affordability and the fiscal position”. It estimated the annual cost of the earnings link would be £1.9bn higher in 2006/07 prices by the end of the next Parliament if it commenced in 2012 than if it commenced in 2015.
By 2050, the extra cost was estimated to be £4.2bn.
Head of defined benefit pension consulting John Ball says: “The public finances are in much worse shape than they were when the Government said it would have to wait and see if restoring the earnings link in 2012 was affordable.
“Today’s announcement says more about the power of the grey vote than about the outcome of any affordability test.
“However, the main cost comes from linking the basic state pension and pension credit to earnings at all – it was always slightly absurd to say that this long-term commitment might not be affordable in 2012 but would definitely be affordable by 2015.”
Hargreaves Lansdown pensions analyst Laith Khalaf says: “It is a major pledge by camp Labour in their manifesto. To be honest, do not think the wriggle room given by the original legislation ever really existed in practice.
“There would have been an almighty uproar if any incoming Government had used the get out clause to delay until 2015. The Lib Dems are still promising to re-link immediately.
“Interestingly the legislation does not specify the measure of earnings that will be used. It is at the discretion of the Secretary of State at the time, so there is wriggle room inside the wriggle room.”
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