Taxpayers could save £600 million to the detriment of pensioners, depending on the date Gordon Brown chooses for the general election, warns Towers Watson.

Should Brown choose a polling day of 1 April or before, the Basic State Pension will have to begin rising with earnings by April 2014 at the latest. However, if a later election date is selected, such as 6 May, the first earnings-based increase will not be necessary until April 2015. The latter is what many commentators expect to see, said Towers Watson.

The reasoning behind the differences is that the Basic State Pension increases at the start of each tax year, and in line with the Pensions Act 2007, it must start rising with earnings before the latest possible dissolution date for the next Parliament - a date little over five years after polling day.

Should a delay occur, the difference between earnings growth and price inflation at the time could save around £600 million in 2014/15, with the annual saving gradually increasing because future percentage increases in the value of the pension would be applied to a lower starting point. The gap between a pension linked to earnings from 2014 and that linked to earnings from 2015 would also widen slowly over time.

The Government maintains that it will restore the earnings link in 2012, although this has always been 'subject to affordability and the fiscal position'.

"The fiscal crisis has already delayed automatic saving in workplace pensions because the Treasury doesn't want to lose tax revenue while it is borrowing so much," explained Rash Bhabra, head of corporate consulting at Towers Watson. "The earnings link could be the next pension reform to be introduced later rather than sooner on account of the deficit. 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."

Meanwhile, those saving through personal pensions, including employer facilitated group personal pensions (GPPs) and group stakeholders, are only benefiting from half of the tax relief due to them, says Standard Life.

Individuals in these schemes are automatically given basic rate tax relief, but the responsibility for re-claiming higher rate relief if eligible lies with the individual. If someone discovers they could have claimed this relief in previous years, they can make a backdated claim for the money due to them.

However, the Government is to reduce the time limit for those making these claims from almost six years to four years from 6 April 2010.

Senior pensions policy manager at Standard Life, Andrew Tully, said: "It's no secret that higher rate tax relief is an exceptionally valuable benefit but, despite that, many people are not aware they need to ask for this extra relief. Claiming your tax is straightforward as you simply have to write to your local tax office. But the clock is ticking, so taking action now could save you money. Govern the current financial climate, a cheque from the Revenue will come as a welcome bonus."

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