Late election date could cost pensioners £600m - study

Gordon Brown's choice of General Election date will affect when the state pension must be linked to earnings, making a late election bad for pensioners but good for taxpayers, according to Towers Watson.

If Gordon Brown goes to the country on 1 April or before, the Basic State Pension would have to start rising with earnings by April 2014 at the latest.

But with a widely-expected later election date, such as 6 May, under the Pensions Act 2007 the first earnings-based increase will not be required until a little over five years after polling day, at the start of the tax year in April 2015.

Putting back its introduction from April 2014 to April 2015 could save around £600m in 2014/15, depending on the difference between earnings growth and price inflation at the time, according to consultancy Towers Watson.

"The Basic State Pension might be £1.50 to £2 a week lower in 2014/15 if it is increased with prices rather than earnings in April 2014," it says.

"As a result, the gap between a pension linked to earnings from 2014 and one linked to earnings from 2015 would also widen slowly over time."

Officially, the Government still says it hopes to restore the earnings link in 2012, "subject to affordability and the fiscal position".

However public sector debt is now projected to reach twice the level forecast when this aspiration was first set out.

Both Labour and the Conservatives have pledged to introduce the earnings link before the end of the next Parliament, though neither party has promised to do so before then.

But the consultancy firm says with the fiscal crisis having already delayed automatic saving in workplace pensions, the earnings link could be the next pension reform to suffer set backs.

Rash Bhabra, head of corporate consulting at Towers Watson, says: "The legislation gives ministers until 2011 to make up their minds on when it is coming back, so the bad news may not be broken until after the election.

"Whether the last possible moment is 2014 or 2015 depends on when Gordon Brown decides to go to the country. From this perspective, an early election would be good for pensioners and bad for taxpayers."