Right now, the State Pension costs us £124bn a year (Image: Getty)
Right now, the State Pension costs us £124bn a year. It’s the second biggest liability in the UK budget. The biggest is, of course, the NHS at £192bn. With the increased costs brought in by the and an ageing population, it is set to go up much more in the next few years.
In fact, figures from the Office for National Statistics (ONS) published this week showed that in ten years’ time, the number of people over age will increase from the 12 million that we currently have to 13.7 million in 2032. That is despite the increase in age to 67 from 2028.
So even though we won’t be able to retire until 67, there will still be significantly more retirees drawing the in just seven years’ time then than there are now. The cost to the state is likely to be over £140bn a year by that stage, As you know, to qualify for the full , you need to have paid National Insurance contributions for at least 35 years. Most people assume, vaguely, that this money is gathered up by the Government, invested by them over the years and then is converted into monthly payments once we reach age.
In fact there is no pot, no investment and no guardianship of our funds…at all. Essentially the is a Ponzi scheme, where the National Insurance that working people pay immediately goes out to pay the pensions of the people who are retired at that time. Once those working people retire their pensions are paid by those who are working at that time.
This is the way the system was set up decades ago and, for a while at least, it worked. But, like any Ponzi scheme, the system only works as long as there are enough people to pay into it.
Worryingly, this week the ONS also stated that the number of children in the UK is expected to fall by over 6 per cent up to 2032. This means that as more people draw their state
pension, there are set to be fewer future workers to help pay for it.
This imbalance can be adjusted in a few ways, although none of them are vote-winners. One solution is to raise the age even higher, maybe to 75. After all, when it was
first introduced in 1908 it was only for people over 70. Another is to make all workers pay even more tax and NI each year – on top of an already crushing tax burden faced by workers. Or we increase immigration by an order of magnitude to bring in more people of working age to earn and pay tax on these shores.
As it happens, the ONS has predicted that there will be net migration of 4.9 million up to 2032 bringing the official population figure to 72.5 million in that year. However, as I found
when I discussed all this on this week, most people don’t want this level of immigration. In fact the mood of the nation is to have fewer migrants from cultures very different to ours, not more.
Not only that but merely increasing the working population in order to keep up with the growing retired population really just kicks the can down the road for this issue, as those workers will, in turn, retire later on and the country will need to find yet more workers to pay for them…and so on.
But the alternatives – paying a lot more tax or retiring at 75 – are major vote-losers for anyone in power, so no Government committee would be likely to suggest either of them.
Former Conservative MP, Steve Baker, told me that, according to figures from the Office of Budget Responsibility, the country is likely to run out of money to pay its obligations – particularly the – within 15-20 years. He adds that “the National Insurance fund, which is like a current account through which a lot of tax washes in and out into pensions and so on, still needs to stay above zero. It’s due to hit zero in 2043-4
according to the Government’s actuaries. There’s a big problem and that problem arises because over decades, promises have been made for age-related spending and they haven’t been funded over the years, and the idea of paying for them ‘pay-as-you-go’ is now running onto the rocks.”
Is anyone in Government talking about this problem? Not that I have heard. But we urgently need an open and honest look at the implications of the balance of our population so that we are not taken off-guard in 10, 15 or 20 years’ time.
How shall we start? Answers in the comments below!
Jasmine Birtles is founder and editor of