Government report paints grim picture for state pension

News


10 Jan, 2018

Government report paints grim picture for state pension

A projection report from the Government’s Actuary Department (GAD) states, that under current measures, National Insurance (NI) funds used to pay out the state pension will be burned out by 2033.

As reported by Hannah Godfrey on Professional Adviser, the projections report released by GAD relies on the assumption that NI “contribution rates and fund benefits will remain subject to an up-rating and re-rating policy”.

According to the GAD report, fund balance will increase until around 2024-2025, but will be burned out by 2033 if no additional support from the UK Government is provided. Before that - between 2025 and 2026 - benefit expenditure is expected to exceed National Insurance Contribution (NIC) receipts by an ever-increasing amount, Godfrey states, equivalent to about 1% to 1.3% of GDP.

AJ Bell senior analyst Tom Selby said the findings paint a "grim picture for the future of the state pension".

"The harsh reality is that, as demographics bite and the Baby Boomers floor towards retirement, the cost of the state pension will inevitably boom," he said. Indeed, the GAD report cites an ageing society and increased life expectancy as cause for concern for the state pension.

"The Government Actuary predicts the fund used to pay out benefits will be exhausted in around 15 years' time”, Selby says before adding that the Treasury will have to step in to ensure people continue to receive their state pensions”.

"These Treasury grants will kick in at £11.6bn a year in 2030 and increase rapidly to £151bn by 2060 and £482bn by 2080 if the system stays as it is.

"The options open to policymakers to plug the funding gap are not attractive. The Government Actuary reckons a 5% increase in NICs would do the trick - hardly a realistic route for any politician wanting to maintain a grip of power".

He continued: "Alternatively, the state pension age could rise further, the value of the payment could be cut or other departments could have their budgets drastically reduced.

"In reality, long-term costs will likely be reined in by combination of the above, but make no mistake - if this nettle is not grasped today, it will be forced on policymakers tomorrow".

Today's News - Global growth to return to pre-crisis-levels in 2018