State pensions will rise in line with earnings from April 2011. The new Pensions and Savings Bill gives a ‘triple guarantee’ that pensions will be raised each year by the higher of earnings, prices or 2.5%.
Earnings link restored
State pensions were linked to earnings from 1974 to 1980, but for the last 30 years have been increased in line with prices, as measured by the retail prices index (RPI). Rises linked to prices protect pensioners from the impact of inflation but as wages tend to outstrip prices each year, state pension has fallen behind average earnings since the link to pay rises was cut. In 1980 the basic state pension was £27.15 a week. Currently, it is £97.65. According to pensions expert Dr Ros Altmann, if it had risen in line with earnings, instead of prices, it would now be ‘above £140 a week’.
Restoring the earnings link should help pensions keep up with future rises in the standard of living. To make sure this happens, the government has committed to an annual increase which matches earnings, inflation or a minimum of 2.5%.
Responding to government proposals, Michelle Mitchell of Age UK said: ‘The coalition Government’s pledges to restore the state pension/earnings link, phase out forced retirement, auto-enrol people into pensions and extend flexible working are all welcome policies. But on the day the government announced 1.8 million older people remain in poverty, it’s disappointing the coalition makes no reference to reducing poverty or making energy affordable for people with low income. We hope to see further progress on these key issues for older people in the next few months.’
More from the Queen’s Speech
We’ve got more coverage on today’s announcements, including news that:
- more powers will be given to the Bank of England to oversee regulation of the UK’s banking system;
- almost a million people who lost their savings in the Equitable Life scandal will be paid compensation;
- the new Energy Bill aims to improve energy efficiency and promote low carbon energy production.
Sign up now for the Which? Money 2010 emergency budget liveblog
Chancellor of the Exchequer George Osborne will deliver the government’s emergency budget on Tuesday 22 June, and you can follow his speech as it happens on the Which? Money 2010 emergency budget liveblog.
Sign up now for an email reminder to join us for the Chancellor’s budget speech, and come back to www.which.co.uk/emergencybudget on the day to get the Which? Money take on the budget and to add your questions and comments.
Which? Money when you need it
You can follow @WhichMoney on Twitter to keep up-to-date with our Best Rates and Recommended Provider product and service reviews.
Sign up for the latest money news, best rates and recommended providers in your newsletter every Friday.
Or for money-saving tips, and news of how what’s going on in the world of finance affects you, join Melanie Dowding and James Daley for the Which? Money weekly money podcast
For daily consumer news, subscribe to the Which? news RSS feed here. And to find out how we work for you on money issues, visit our personal finance campaigns pages.