The rating agency Standard & Poor's believes that mounting pension provision could hit the UK's overall credit rating, according to a report.

Investment and Pensions Europe (IPE) reports that Standard & Poor’s has suggested that the UK’s sovereign long term debt position could be threatened by increased pension spending, as envisaged by the recent Turner report.

In particular, the agency said that the UK authorities would find it difficult to resist the pressure to restore the index link between earnings and the state pension, given that UK seniors are among the worst off in Europe in terms of pension benefits when compared to average earnings.

As early as 2002, Standard & Poor’s had flagged the possibility that the downward trend in the basic state pension as a proportion of earnings witnessed since the 1980s would eventually become politically unsustainable.

In practice, however, the prospect of improving budgetary performance appears to be receding further into the future, with the latest pre-budget statement confirming the fifth consecutive year of rising general government deficits in 2005, and raising borrowing forecasts for this fiscal year and the next, the agency said, cited by IPE.