date: 30 December 2008

embargo: 00.01hrs Thursday 1 January 2009

Government should mark state pension centenary by restoring earnings link

The TUC has today (Thursday) called on the Government to mark the centenary of the UK's first state pension payouts by restoring the link between pensions and earnings so that pensioners receive a reasonable increase in their pension, even if price inflation is close to zero.

The Government has pledged to restore the link to earnings, which was abolished in 1980, but not until 2012. At present pensions are increased every April in line with the level of price inflation (RPI) the previous September. This means that pensioners will do better than in recent years next April, as pensions go up by five per cent to reflect last September's relatively high inflation rate.

But with most people expecting inflation to fall rapidly throughout 2009, it is possible that RPI could be close to zero or even negative next September, leaving pensioners to face a tiny increase in April 2010 - possibly just before a general election.

While the recession may well depress earnings growth, most experts do not expect average wage increases to fall to anything like as low as RPI. Restoring the link to earnings or prices - whichever is higher - would ensure that pensioners get at least a modest increase in their pension at a time when many are suffering from very low rates of return on their savings.

On 'Pensions Day' one hundred years ago today (1 January 1909) over half a million over 70s collected their first ever means-tested pension of up to five shillings (25p) or up to seven shillings and sixpence (37.5p) for married couples.

TUC General Secretary Brendan Barber said: 'Today we celebrate the 100th birthday of the first ever state pension - a crucial marker of any civilised society - and what better way to celebrate than restoring the link to earnings in the year ahead.

'Ministers deserve praise for already changing the law to allow this to happen in 2012. But they should bring forward the planned date, set well before the credit crunch turned the world upside down.

'Next year price inflation could even fall below zero which would leave pensioners to face a miserly increase in April 2010 if there is no change. Earnings growth is not going to take off next year so restoring the link will be affordable, and will avoid the political mistake of imposing a tiny pension increase in what could be an election year.'

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Contacts:

Media enquiries:
Liz Chinchen T: 020 7467 1248 M: 07778 158175 E: media@tuc.org.uk
Rob Holdsworth T: 020 7467 1372 M: 07717 531150 E: rholdsworth@tuc.org.uk
Elly Brenchley T: 020 7467 1337 M: 07900 910624 E: ebrenchley@tuc.org.uk

Press release (500 words) issued 1 Jan 2009