Latest figures showing the annual cost of caring for the elderly in Scotland rising by £1 billion in just 15 years to £2.5 billion a year should come as no surprise to the Scottish Executive. Barely two years ago, the former First Minister, Henry McLeish, supported by the Liberal Democrats, pushed through legislation for what was loudly trumpeted as "free care for the elderly". The Conservatives also gave their support. 

Scotland's changing demographics were already well known at this time. And many warnings were sounded about the yawningly open-ended nature of this commitment. But little heed was taken. Indeed, the legislation was hailed as a flagship achievement of devolution, and all the more so when the Labour government in Westminster chose not to adopt it nationwide. 

Politicians, particularly when bestowing "free" gifts, have an obligation to show not just the cost of that commitment but how it will be maintained. Little such candour has been forthcoming. As a new report by the Executive reveals, the "free" care commitment is not "free" at all. And the estimated costs of sticking with it are already climbing sharply. Not only do we face an aging of the population, but we are also living longer. And that has clear implications for policy. Over the next 23 years, the number of Scots over the age of 75 is forecast to rise by 61 per cent. And the cost of providing care for the elderly overall is reckoned to rise from £1.4 billion now to £2.5 billion by 2019, a rise of 81 per cent. 

Now come predictions from experts of soaring tax bills, compulsory insurance, and old people being obliged to stay in their homes in order to cut costs, rather than go into care. 

Now it is vital in all of this that debate does not come to stigmatise the elderly or present older people as some crushing burden that has to be borne. The problem we face is not aging. It is about the mustering of resources to meet the challenge. That is why current problems relating to confidence in, and incentive for, long-term saving, pension saving in particular, should be central to this discussion. Because of the Chancellor's pension benefits means-testing and his tax raid on pension funds (now amounting in aggregate to £30 billion), many now feel they have no incentive to save, while many private-sector pension schemes are in crisis. Already some 200 have been wound up in the past few years. Little wonder some now fear the entire system of funding care for the elderly could go into freefall. 

While a few in the Scottish Executive were uneasy about the "free" care commitment at the time, it was supported in cabinet and the coalition is now stuck with it. It now falls upon its senior members to articulate clearly how this commitment will continue to be honoured without a curtailment of spending commitments in other areas and without huge rises in council tax, where many pensioners are already struggling. 

There is no simple way to defuse this time bomb. But it is becoming clear with every month that action is rgently needed to restore confidence in long-term saving. This, in turn, will require a radical change in the tax rules governing savings and the lifting of tax imposts on millions of retirees. There would be significant direct benefits to Scotland of such a policy: we have a financial services industry that has been a major contributor to employment and growth in recent years. There is nothing that either Westminster or the devolved parliament can do about an aging population. But much can and should be done to re-encourage saving for retirement.