Pension means tests proposed

A BODY commissioned by the Government to report on the state of pension provision in the UK is set to urge ministers to consider a form of means- testing for the Basic State Pension.

The independent Pensions Provision Group is warning that pensioner inequality will rise massively over the next two decades if the Government goes on raising the basic state pension only in line with prices.

In a report to be published in the next two weeks, the group will set out a means by which rights to the Basic State Pension could be targeted on the poorest pensioners.

Tom Ross, chairman of the group, said: "Pensioners now get much the same whether they are well-off or poor. One has to ask whether it would be better to divert some resources to those who really need it."

The report is the most comprehensive review of pension provision undertaken and is likely to be very influential in the Government's programme of welfare reform.

Mr Ross said one reform could restrict rights to a higher level of basic state pension - perhaps pounds 100 a week - to those whose lifetime earnings are too low for a decent private pension. The rights of those on higher incomes would correspondingly be reduced. It would be based on lifetime income. The report is also set to explode the myth that a `demographic timebomb' will make state benefits unaffordable as the retired population increases over the next three decades from 10 million to 15 million. "By the middle of the next century, the proportion of GDP we spend on state pensions will be less than today because the larger number of recipients will be offset by the lower level of benefits," Mr Ross said.

However, the group will report that restoring the link between the basic state pension and earnings, abolished in 1979, would boost the cost of state pensions by a quarter within decades.