£12bn is a price we must pay to put right Tory blunders

He inherited two pensions scandals from the last government. The first was the pension mis-selling of the Eighties, which has taken years to sort out. The second was one of the biggest scandals in 50 years, in which millions of people were misled about changes to widows' and widowers' inheritance rights to the State-Earnings Related Pension Scheme (Serps).

He inherited two pensions scandals from the last government. The first was the pension mis-selling of the Eighties, which has taken years to sort out. The second was one of the biggest scandals in 50 years, in which millions of people were misled about changes to widows' and widowers' inheritance rights to the State-Earnings Related Pension Scheme (Serps).

The problem arose back in 1986, when the then Tory administration changed the rules governing how much Serps could be passed on to a person following death of their spouse. They wanted to make sure that the rules for Serps were the same as those for occupational pensions. Unfortunately, in an inexcusable series of blunders over 10 years, Depart-ment for Social Security (DSS) leaflets contained incorrect information that led people to believe nothing had changed.

When we came to office, we were faced with a situation in which millions of people had been given wrong, misleading or incomplete information. This meant that many hadn't had the opportunity of making alternative provision.

It was clear to me that we had to redress this injustice. In March this year, I announced that we would defer changes in the inheritance rules for two-and-a-half years until 6 October 2002, while I consulted on how to sort out this huge problem.

We have decided the fairest course is to ensure that today's pensioners are protected while we phase in the changes over 10 years, to give people proper notice to make alternative arrangements for retirement.

Consequently, I announced last week that anyone who is over the state pension age on 5 October 2002 will be exempt from the changes and keep their existing Serps entitlements. The new rules will now apply only to men and women who are 10 years or more away from drawing the state pension.

If someone is reaching state pension age between 2002 and 2004, they will be able to pass on 90 per cent of their Serps, dropping to 80 per cent if they retire between 2004 and 2006, and so on.

And the cost? Over the next 50 years it will be around £12bn. But that's the price we have to pay to put right blunders made after 1986.

At the same time, we've also taken steps to make sure this sort of disaster doesn't happen again. We've tightened up the fact-checking procedures on leaflets, and from next year we'll be sending out combined pension statements so the public will know how much income they'll get in retirement.

 

* Alistair Darling is Secretary of State for Social Security.

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