This week’s Queen’s Speech contained a hint that the government may gradually raise the state pensions age to 70, as part of its long-term strategy of government cuts to trim down the national deficit.
This means that an increasingly healthy and longer-living UK population may, in time, have to work an additional 5 years before drawing government pensions. During this time, they will be contributing National Insurance contributions for several years longer, and claiming them back, in state pensions, for several years less, achieving a ‘longer pay-in, shorter pay-out’ situation that will benefit the coffers of state.
However, there is a hidden threat to the government pensions structure which few, to date, have noted. With life expectancy now running at 86 for a man and 89 for a woman, there’s a storm brewing that may shake the entire government pension sector to its foundations.
Government statistics show that, while there were 3.3 people paying National Insurance for every person taking a state pension in 2001, that looks set to fall to just 2.4 workers for every state pension holder by 2060. At the same time, while around 16% of the UK population is over 65 today, this may rise to 22% by 2030.
Meanwhile, government pensions are set to become more generous. The government is committed to re-linking state pensions to inflation from 2012 (they are currently linked to retail prices) which will increase the value of government pensions, but will cost the taxpayer an extra £2bn per year.
More pensioners drawing more substantial state pensions, and less workers per pensioner to fund those state pensions. The future burden on government pensions cannot be predicted. The ‘pensions timebomb’ is ticking.
Workers now aged 20-40 would do well to consider the possible actions that may be taken in the future, if these separate developments begin to stretch government budgets to the limit.
The solution is pensions planning
Given such an unpredictable situation, experts are calling on UK employees to pay urgent attention to their own pensions planning with the help of a qualified pension planner. This applies in particular to the 52% of UK workers who currently have no company or private pension plan (source: Halifax).
Would you like to learn more about pensions planning? Make a pensions enquiry online now, or call freephone 0800 678 5929
