Unews World
An industry expert has warned that the state pension age may need to rise to 80 without dramatic reforms, amid concerns the nationwide bill will be “completely unaffordable” as life expectancy increases.
The UK’s state pension age is set to increase from 66 to 67 between 2026 and 2028. There is a further increase to 68 lined up for 2046 but this is widely expected to be brought forward significantly, with a wider pensions review underway.
However, the annual cost of the state pension is rising and people are living longer – meaning higher pension bills for longer. The latest report from the Office for Budget Responsibility (OBR) suggested the cost could be £200bn a year by 2073.
The upshot is that either the triple lock needs to go or people need to contribute far more to it during their working lives, with estimates saying the state pension will cost 7.7-8.4 per cent of GDP by the 2070s.
Jack Carmichael, a pensions expert and actuary at Barnett Waddingham, warns that can’t be paid for in current terms, and might even be undershooting the reality by then, too.
“A more cautious approach would be to assume a closing of the life expectancy gap between the individuals with the lowest and highest life expectancy. Under this alternative, the annual cost of the state pension would increase by around £8bn a year – four times higher than the OBR’s central projection,” Mr Carmichael told the Telegraph.
“Keeping the cost at a similar proportion of GDP would then require a massive increase in the state pension age, potentially up to the dizzying heights of 80.
“Even if the central projection is correct and state pension spending hits 7.7pc of GDP, the cost is still going to increase by almost half in today’s terms. That’s completely unaffordable. Employees are either going to have to contribute 50pc more to the state pension or [the government is] going to have to change the system in some way.”
Other experts have said the pensions system could be bringing in less than it pays out in as little as a decade.
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That means this government – or at least its review – might have to act now despite the clear unpopularity of doing so.
“This latest state pension age review, however, may eventually force the government’s hand,” said Rachel Vahey, head of public policy at AJ Bell.
“State pension benefits are one of the single biggest expenses for the Treasury and account for more than 80 per cent of the £175bn pensioner welfare bill. Without policy intervention, state pension costs are set to spiral to nearly 8 per cent of GDP over the next 50 years based on the current trajectory, up from 5.2 per cent today.
“One option is to raise the state pension age higher and faster than currently planned. Although the elephant in the room is that state pension age is just one lever government has to help manage the cost of the state pension – the other is reforming the triple lock.”
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