Main parties fail test on funding state pensions

Both main parties are misleading voters about their plans for pensions, according to independent analysis of one of the key proposals in the Conservative manifesto.

The Institute for Fiscal Studies, a respected think-tank, says in an analysis for The Independent that Conservative proposal for a "basic pension plus" does, as Tony Blair claims, amount to replacement of the guaranteed basic state pension by a private pension. "It is effectively a privatisation of the state pension," said Paul Johnson, deputy director of the IFS.

This would apply only to people retiring after 2040, however, and not to people who are pensioners now or retire before then. The IFS argues that this privatisation would be a radical change to basic pension provision, and one that is not demanded by funding problems. There would be no difficulty in continuing to pay for state pensions through the tax system.

But its analysis does not allow Labour to claim that pensions are safe in its hands. For it now proposes, like the Conservatives, gradually to reduce basic state provision by linking the value of the pension to prices rather than earnings. "We are effectively seeing general agreement that the basic pension will be gradually phased out," Mr Johnson says.

In yesterday's dispute both parties played down the fact that anybody who is under 20 now cannot count on receiving a state pension that provides enough to live on, no matter who wins the election. The pattern of pension provision is almost certain to involve two tiers, a basic state sum and a top-up private pension.

The amount provided by the state, whether under Labour or the Conservatives, will be minimal.