18-11-02

“Pension to rise by 75p over 50 years” - Barrett

John Barrett, the Scottish Liberal Democrat MP for Edinburgh West, today raised concerns over new figures that showed the state pension, in today's prices, rising by only 75p over the next 50 years.

The Government has admitted in answers to parliamentary questions that the current state pension of £75.50 per week will increase to only £76.25 in fifty years time. The House of Commons' Library released a report which showed the increase will come from the Government's long term policy of increasing the pension by 2.5% or inflation, whichever is higher.

In a statement, Mr Barrett, said:

"It seems the Government has learnt nothing from the derisory and insulting 75p pension increase two years ago.

"Whilst the UK economy is predicted to more than double over the next fifty years, the Government are leaving pensioners further and further behind the rest of society.

"It is now time for the Government to seriously look at its whole pensions policy. The Work & Pensions Secretary must make a clear statement of commitment to the state pension in the long term and put his words into action by substantially increasing the state pension, especially for older pensioners."

ENDS

Notes to editors:

· The library note reveals the 75p increase will result from a change in the way the pension is uprated after the 2003-04 increase which will be announced this afternoon.

· The letter from the House of Common's Library to Steve Webb, Liberal Democrat Pensions Spokesman is shown below

House of Commons Library Research Service

1 Derby Gate London SW1A 2DG

15 November 2002 Dear Mr Webb

Retirement pension

You asked about the assumptions behind a recent written answer in which the real value of the Retirement Pension was projected 50 years ahead.

Adam Price: To ask the Secretary of State for Work and Pensions what assessment he has made of how much the state pension will be worth over the next 50 years.

Mr. McCartney: The Government believe that the State Pension should remain the essential foundation of income in retirement. The Basic State Pension is currently £75.50 for single pensioners. In the short-term we have given the guarantee that the basic State Pension will be increased by at least £100 a year for single pensioners and £160 a year for couples in 2003-04. In future years, the Basic State Pension will be increased by 2.5 per cent. or the increase in the September Retail Prices Index, whichever is the higher. Based on current policy, we estimate that the rate of the basic State Pension will be around £76.25 in 50 years time in today's prices.

[6 Nov 2002 : Column 409W]

I have spoken to the DWP official who carried out the calculations underpinning these figures. The rate of the BSP was calculated based on existing policy ie, it is guaranteed that the full annual basic state pension will rise by at least £100 for a single pensioner and £160 for pensioner couples in 2003-04. In future years the basic state pension will rise each year by 2.5 per cent or the increase in the September Retail Prices Index, whichever is higher.

In order to calculate the rate of the BSP in 50 years time (in today's prices) assumptions were made about future uprating. The assumptions we used for the upratings are as follows:

April 2003 2.6% (this meets the Chancellor's budget 2002 pledge for 2003)
April 2004 2.5%
April 2005 3.0%
April 2006 2.8%
April 2007 2.6%
April 2008 onwards 2.5%

(The uprating assumptions from April 2003 take into account the current policy on BSP uprating and are based on Treasury assumptions about RPI).

If the BSP was strictly price uprated then its rate in 50 years time, in today's prices (ie constant prices) would be £75.50. There is a real increase in the BSP because in some years the BSP uprating percentage is greater than assumed September RPI. This happens in April 2003 when September 2002 RPI was 1.7% and in April 2004 when assumed September 2003 RPI is 2.4%.

But after April 2008 the Treasury price inflation assumptions of 2.5% keep pace exactly with the minimum increase in the pension and there is therefore no real growth from then on.