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Why did the government take away the state pension link to earnings?

The last few days have seen mention of the centenary of the UK state pension and a suggestion that the link to average earnings should be reinstated. While this would make great sense, and assist the growing number of elderly in the UK, many people are starting to wonder about the reasons for taking away the link in the first place. On the surface there appeared no reason not to increase the state pension by the average earnings but as ever this turned out to be a financial decision.

As the economy continued to rise in the 70s and 80s average earnings were running at fairly high levels and the increase in the UK government's pension liabilities were also increasing. As a consequence a decision was taken to disconnect the annual rise in the state pension from an increase in average earnings. At the time there was very little mention of the change but as the years have gone by and annual earnings have increased, the older generation have been left behind.

Many believe it is too late to call for a reinstatement of the link as the UK government's pension liabilities for the public sector have risen to frightening levels. A further ongoing increase in liabilities for the state pension would seem very unlikely especially in the current economic environment.

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