Pensioners 'caught in benefits trap'

The average pensioner couple would have to save more than £180,000 during their lifetime to avoid losing out under current means tests, Oliver Letwin, the shadow Chancellor, said last night.

In his first policy speech since taking over the job, Mr Letwin said government disincentives had led to a collapse in Britain's savings culture. Under the Treasury's new Pension Credit, which was introduced in October, state aid is steadily reduced in line with the value of the assets owned.

Research by Mercers, a firm of actuaries, found that a typical pensioner couple living in a rented home would need to save £180,000 on top of the state pension to avoid being caught by the benefits trap. If they saved any less than that, they would suffer benefit withdrawal at a rate of between 40 per cent and 85 per cent for part or all of their retirement.

More than half of pensioners are eligible for means-tested benefits and this is expected to rise to three-quarters by 2025, Mr Letwin added. People were increasingly viewing it as pointless to build up savings, he told the Centre for Policy Studies.

Mr Letwin said the Conservatives would counter this trend by increasing the level of the basic state pension.