Funding the UK State Pension is a historically nightmare – but now the ghosts of the dead are coming to haunt and destroy us?


Halloween may be nearly here again but the real frightening ghouls and spooks that Britain faces these days really arise from the past and the iconic universal State Pension that was introduced back in 1946 by the national insurance act, doesn’t it?

Yep, the problem is that these days the cost of funding the present ‘old-age pension’ coupled with the rest of the benefits system is crippling the Country to such an extent that things just can’t go-on like it much longer, can they?

Now, that is NOT to say the state pension [SP] is far too generous – far from it, the UK’s SP languishes at the bottom of the table amongst the world’s 35 developed economies, but it is just that it is inadequately funded not least because the population is skewing towards the non-working elderly who are living increasingly longer. [Turkey, Portugal and the Netherlands rank top for their far superior pension schemes, with Britain having a less than generous pension – however that is offset somewhat by many here having an additional top-up private pension, so that system definitely warrants further government encouragement]

[Back some 70 years ago male life expectancy was about just 63 years and this has progressively increased to around 80 years today, as childhood survival increased and adult improvement in lifestyles, working conditions, and health care has been delivered – women do better with a gap of 2 extra years life expectancy].

The underlying consequence of this all is that basically the national insurance paid by current workers and employers of each generation is actually in reality paying the SP for those of the previous generation who have already retired – that’s not sustainable, surely? You see, last year pensioners were supported by a massive 60% share of the £217bn welfare spend with over £90bn [over 40%] of that going on their pensions.

Of course, when the pension was first introduced nobody had made any prior contributions by way of national insurance so the costs were covered by general taxation and the non-retired payers into the new fund, but then thereafter national insurance contributions were just playing catch-up. That hasn’t been helped from a financial point of view by all the enhancements since then that have included the likes of pension equality and reduction of years paying-in or inclusion of those who haven’t paid-in at all [the running balance on the fund is less than a quarter of the actual annual expenditure].

Despite the fact that the government has tried to offset the problem of increased pensions cost due to the greater longevity of pensioners, by gradually extending the state pension age [now equalised this year at age65 for women and for both men and women moves to age66 in 2020/26 then to age67 by 2028, and provisionally age68 between 2044 & 2046], that’s nowhere near enough to solve the increasing financial crisis for the national insurance fund, is it?

No, other dramatic things will have to happen in the next 14 years before the ring-fenced fund for Pensions [and some benefits] is finally exhausted and hits the big zero. It’s grimly simplistic really, either substantially more money has to got to go in, OR significantly less money has to go out, and you don’t have to be an accountant to work that one out, do you?

National Insurance payments go towards the NHS (well under £25bn last year) and mainly the ring-fenced state benefits and services of State Pension, unemployment benefits, sickness and disability allowances, and bereavement benefits

Therein comes the bleeding problem of course – how the heck do you do whichever in a way that is acceptable to the workers, the employers, the current pensioners, the future pensioners, and indeed the whole Country, eh?

Oh yes, the government of the day could do a short-term fix by stuffing in other taxpayers money but at say a £100bn a year that would indeed have to be very very short-term, wouldn’t it?

Boosting the fund’s income certainly would present a big problem for any government hoping to survive, as substantially increasing national insurance contributions [say from 12% to 17%] would be widely resisted and unpopular, not least because it wouldn’t be primarily for the benefit of those paying- in long-term, would it? Perhaps all workers even those of pension age even should in future continue to pay contributions?

The harsh and most clinical way of reducing expenditure would be of course to means-test the state pension as many other benefits are, but that could cause uproar as those who have paid-in all their working life would feel utterly cheated – though possibly means testing could apply to just those who have paid-in least? However, the Achilles heel of that solution is the disincentive it would create for people to save or make other provision for their old age, wouldn’t it?

There can be no doubt that a significant reduction in the pension award paid would drive many old people into poverty and require other welfare funding – but if the cupboard is bare what else can be done, eh?

People need to be weaned-off the comforting expectation that the state pension alone will meet their needs in old age and instead plan to substantially supplement that possibly reduced income by other means including savings.


[It is an utter disgrace that successive government with their head in the sand approach have allowed this known situation to feaster until it has become almost terminal. It has to tacked now and that needs to be on a cross-party basis to avoid political turmoil or further inaction]


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