Government to 'lock in' earnings link to pensions

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Indy Politics

The Government will announce today that it will "lock in" its proposals to increase the state pension so they could not easily be overturned by another administration.

Ministers will enshrine plans to raise the basic state pension in line with earnings in their Pensions Bill to provide a guarantee that they will be more generous in future. The measure will also improve the pensions of millions of women and carers.

The Bill, to be published today, will ensure that the pension credit, which tops up the incomes of the poorest old people, is also linked to earnings. The Tories, who have suggested that they may allow the top-up payments to wither on the vine, would have to repeal the Bill in order to scrap the link.

Normally, the Treasury leaves itself some flexibility to allow for unforeseen economic circumstances. The drafting of the Bill was a sensitive issue because Gordon Brown regarded as unaffordable the package on which it was based - a report by the Pensions Commission chaired by Lord Turner of Ecchinswell. The wording of today's Bill has been negotiated by Ed Balls, Mr Brown's closest aide and the Economic Secretary to the Treasury, and James Purnell, the Pensions minister, who is a Blairite. Their deal is seen inside the Government as a sign of closer co-operation between the Blair and Brown camps. The tension between Mr Brown and Mr Blair in the run-up to a Pensions White Paper was noticeably absent from the talks on the Bill.

The agreement means that the state pension will rise in line with earnings, almost certainly from 2012. The Bill will guarantee that, at the latest, this will happen by the end of the next parliament - expected in 2013 or 2014.

The earnings link was severed by Margaret Thatcher's government in 1980, since when the state pension has been increased in line with prices, which normally rise more slowly than earnings.

But people will have to work longer to receive the higher state pensions. The qualifying age will rise from 65 to 66 by 2026, to 67 by 2036 and 68 by 2046.

At present, only 30 per cent of women are entitled to a full state pension when they reach retirement age, compared with 85 per cent of men. Under the Bill, the number of women receiving it will rise to three quarters by 2010 and more than 90 per cent by 2025. Today women reaching state pension age typically receive about £77 a week, a figure that will rise to about £130.