Ministry's £35bn pensions gaffe

THE pensions crisis deepened on Monday as Ministers admitted they had overestimated the amount being saved for retirement by a staggering £35bn a year. After arguing for months that the cash being put away by Britons into non-State pensions was at record levels, the Government finally admitted it had blundered.

In his first Commons appearance as Work and Pensions Secretary, Andrew Smith confessed the total last year was not, as the Government claimed, £86bn. A 'statistical error' had been made and the true total was likely to be £51bn.

It means that the 12m people who have occupational and private pensions are not saving £7,000 a year as Ministers had claimed, but only £4,600. Apologising for the second such mistake in recent months, Smith said he had launched a complete review of the figures.

For months the Government has insisted that its pension policies were delivering the goods. Pensions Minister Ian McCartney has said: 'The stable economy has created the right conditions to save, and our policies to encourage higher levels of private saving are having a positive effect.' Smith's predecessor, Alistair Darling, said the level of saving was 'encouraging'.

The blunder comes amid evidence that for the first time in more than 20 years the number of workers retiring with their own pension is falling. The figure peaked at more than 66% of the pensioner population in 1997. Since then the proportion leaving work with occupational schemes has dipped below 60%.

The reason is that smaller firms which have proliferated in the service sector are less likely to offer occupational pensions than those in heavy industry which have declined. Many workers in the new industries opted for private sector schemes which have often proved inadequate.

Smith said the £86bn total had been exaggerated by more than a third due to double counting of funds transferred from one investment to another. Critics denounced it as an 'elementary howler'.

The Minister also faced stern questions about the rush by companies to shut down final-salary pension schemes and switch to much less generous arrangements. The companies blame a £5bn a year tax grab and falling stock markets. Smith said the Government was to consider 'concerted and radical action' to sustain final-salary schemes.

His Tory Shadow, David Willetts told him: 'It's a pity that your first appearance at the Dispatch Box is to admit a serious error made by your predecessor.' Later Willetts said: 'We are not saving enough and millions of people are facing poverty in their retirement.'