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Conservatives
predict £100bn pensions black hole Spending on state pensions will blow a £100bn hole in the Budget by 2050, the Conservative party claimed last night, as it accused the government of "massively understating" the true cost. The government will be forced
to pick up the tab for the collapse in private pensions, which will load
extra costs on to its new means-tested regime, according to David Willetts,
shadow secretary for work and benefits. "I estimate that
expenditure on benefits for older people could well double to 10% of GDP
by 2050, a £100bn increase in today's money," said Mr Willetts.
"These figures show that means testing benefits does not save money
in the long term. It makes state spending on pensions even more sensitive
to the collapse of funded pension savings." While other European countries
are expecting the share of national income spent on pensioners to rise
sharply, government projections show spending in Britain remaining stable
at around 5% of GDP. But the Conservatives claim
that the government figures exclude some benefits and assume that
pensioners' incomes from their own savings will continue to rise in line
with average earnings. Mr Willetts says a typical
with-profits personal pension will deliver an income three quarters of
what it would have been six years ago, while annuity costs have increased
by a half. The combination means that the typical pensioner is retiring on
an income half what they could have expected in 1997. "All of this adds up to a
grim picture," Mr Willetts told the Institute of Economic Affairs,
yesterday. "Funded pensions, a great British success story, are now
in headlong retreat." With fewer workers able to save
sufficient funds for their retirement to lift them above the threshold for
qualifying for means-tested additions to their pensions, the government
faces a larger than anticipated bill. However, independent experts at
the Institute for Fiscal Studies queried Mr Willett's sums. "Based on
existing policies its hard to see pensions costing an extra £100bn,"
said policy analyst Carl Emerson. "The UK doesn't have a financing
problem, but it does have a political problem. The real question is how
much of pensioners income do we think the state should be providing?" Copyright
© 2002 Global Action on Aging
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