'£35bn blunder' puts pensions in disarray

Ben Russell Political Correspondent
Thursday 23 January 2014 03:39

Labour's pensions policy was thrown into disarray last night after a statistical blunder forced the Government to admit it had no clear idea how much millions of people were investing for their retirement.

The hugely embarrassing mistake means contributions may have been exaggerated by up to £35bn a year. Andrew Smith, the new Secretary of State for Work and Pensions, announced a complete overhaul of the way pension funds would be monitored.

David Willetts, the shadow Work and Pensions Secretary, said the admission reinforced fears that millions were heading towards a retirement in poverty. Professor Steve Webb, spokesman for the Liberal Democrats, said the fiasco left "a black hole at the heart of pensions policy".

The latest crisis is a further blow to the British pensions industry at a time of fury at the closure of final salary pension schemes and increasing concern that millions of Britons are not saving enough for their retirement.

Figures published in May showed pensions contributions running at £86bn last year, reflecting a 54 per cent real-terms increase in private pension contributions since 1997. They were hailed by the Pensions minister, Ian McCartney, as evidence "that our policies to encourage higher levels of private saving are having a positive effect".

But news emerged yesterday that figures compiled by the Office for National Statistics included transfers of money between pensions funds as well as new savings.

Mr Smith warned: "I think it wise to treat figures with caution until the outcome of the review" – but he insisted the figures had been published in good faith.

Mr Willetts said ministers had ignored clear double-counting. "They were making an elementary statistical howler by including money moving around the system as though it was new money."

The Conservatives' estimate, based on tax returns, suggests £51bn was put into pension schemes last year, £35bn less than government estimates.

Professor Webb said: "It was criminal not to apply common sense to statistics. People's standard of living in retirement is being determined today, but we have had five wasted years."

Ministers will face fresh pressure in the Commons today when the Tories hold a full-day debate on the issue.

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