Bloomberg reports that the agreement restores the link broken more than 25 years ago between state pensions and employee incomes, avoiding the need to increase taxes to fund more generous retirement benefits. Increasing pensions in line with income rather than retail prices was a recommendation from a federal pension commission headed by Adair Turner (See Turner Commission Calls for UK Pension Changes).
Turner’s Commission was to make recommendations for closing a 57 billion pound ($168 billion) funding gap for state pensions, Bloomberg notes. Additional recommendations from the Turner report include increasing the retirement age to 68, ending means-testing for benefits (where bigger pensions would go to those with greater need), and the creation of a National Pension Savings Scheme funded by employee and employer contributions.
The Blair/ Brown compromise, which would restore the link between pension and incomes beginning in 2012, calls for an increase in the retirement age to 68 by 2050 to aid in meeting pension funding requirements. Blair had asked that the link be restored in 2010, but Brown argued that an earlier adoption would require tax increases.
Unions attacked the delay in restoring the link, saying that the proposal does nothing for current pensioners. In addition, according to the news report, Secretary General of the GMB trade union Paul Kenny said , “Many people will not be fortunate enough to live to 68.”
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