The basic state pension would rise in line with earnings from 2012 rather than waiting until 2015 when it is is required by law, if Labour wins the general election.
It would mean the Government would lose around £2bn a year by the end of the next Parliament, according to Towers Watson. Over the long term, the cost would rise to £4bn a year.
When first announced in May 2006, the Government said restoring the earnings’ link by 2012 was “subject to affordability and the fiscal position”.
Towers Watson head of defined- benefit pension consulting John Ball says: “The public finances are in much worse shape than they were in 2006.”
Richard Jacobs Pension & Trustee Services managing director Richard Jacobs says: “I do not think they had any choice. We need a good, simple state provision linked to earnings.”