The decline of the state pension began in 1980 when Margaret Thatcher’s government severed the link between the state pension and average earnings, introduced by Labour’s Barbara Castle in 1974. Thatcher’s dream was to wean people off the state and onto private provision in the same way she wanted to wean people off council houses. Although an earnings link has been restored by the coalition, the damage has already been done by successive governments since Thatcher. The new flat-rate pension of £144 a week planned for 2016 will still be below what it would have been in 2008 had the earnings-link been maintained.
That pensions / earnings link is a dark tale.
Previously the pension was linked to general inflation. Which was rather roaring in 1974. So, link it to wages, which were falling behind general inflation. Then, later, earning were rising faster than inflation, so switch it back. And of course now, earnings are behind inflation. So back to the link to earnings again.
Oh, and that final statement that if the link to earnings had been maintained then the pension would be higher. That’s proof that earnings have risen faster than inflation, isn’t it?