Pensions crisis worse than we thought

Oct 04 2004 by Brian Amble Print This Article

Fundamental errors by the Office for National Statistics (ONS) mean that the government’s pensions policy decisions have been based on huge over-estimates of how much Britons are saving for their retirements.

The ONS mistakes mean that the Inland Revenue has been over-estimating the amount of tax relief paid on pension contributions over the past five years by an average of about £3 billion a year and the amount of and National Insurance relief by an additional £1 billion a year.

The overall difference of nearly £20 billion means that Britons have been saving far less for their retirements than previously thought.

The ONS has also reduced its estimate of how much money Britons put into their pensions in 2002 by £12 billion.

Tory pensions spokesman David Willetts told the Telegraph newspaper that the figures underlined how complacent the Government has been about the pensions crisis.

“Tax relief on contributions has been worth less because pension contributions have been smaller than the Government thought,” he said.

"The value of tax relief and National Insurance relief over the past five years now turns out to be nearly £20billion lower than the Government used to claim. Against this background, the Chancellor's £5billion-a-year tax on pension funds is even more damaging."

Stephen Yeo from pensions consultants Watson Wyatt said that the mistakes meant that policy decisions had been based on inaccurate figures.

“It is two-and-a-half years since these errors in pension statistics first came to light,” he said. “Since then we have had two major pieces of pensions legislation, both of which have been founded on incorrect data. It is unfortunate that the ONS has taken this long to correct its error.”

And he added that the figures showed that the loss of the tax credit on dividends in 1997, which was widely estimated to have cost pensions funds £5 billion a year, has been a much more severe blow than previously assumed.

Meanwhile, Adair Turner, who chairs the government’s Pensions Commission, which is due to publish its long-awaited report into pension provision on 12 October, said that he had spent five months at the ONS trying to find accurate data and that the official statistics were “inadequate”.