The demographic time bomb facing Britain’s state pension system is about to explode. As the last of the Baby Boomers turn 60 this year, a tidal wave of retirements will strain the pension system to the breaking point.
For decades, gradually increasing the state pension age helped defuse the threat of rising costs from an ageing population. However that safety valve is losing its power. Despite pushing the pension age to 67 by 2028, overall state pension spending is projected to soar by £23 billion over just the next five years.
The numbers are staggering. Pension expenditures currently make up 5.1% of GDP. However this could reach 8.6% by 2073 as the number of pensioners balloons from 12 million today to an estimated 17 million by 2070. Meanwhile, the working-age population is only expected to grow by 1 million people over that same period.
Compounding the problem is stalling life expectancy. After decades of steady increases, UK longevity gains have slowed to a crawl and even reversed course following the pandemic. With large inequalities in life expectancy between affluent and deprived areas, further raising the pension age could leave some unable to claim their pension at all before passing away.
A Sicker, Less Productive Workforce
High rates of economic inactivity among working-age Britons also threatens the long-term viability of the state pension. Over 20% of those aged 16-64 are neither working nor looking for a job. With 2.8 million classified as long-term sick. As the pension is funded by taxes on current workers, this workforce shortage will severely strain the system as retiree numbers swell.
Estimates suggest the ratio of pensioners to workers could hit 35 to 100 within just a few years. With fewer employees generating the tax revenues to pay for pension benefits, the system is heading towards insolvency without reform.
No Easy Answers
Potential solutions all involve difficult trade-offs. Raising the pension age again risks leaving poorer areas unable to claim their pension at all. This is due to lower life expectancies. However, abandoning policies like the triple-lock that increase payouts annually could impoverish retirees struggling with the rising cost of living.
Experts argue a more holistic approach focused on improving economic productivity, workforce participation, and public health could provide a path forward. Getting more Britons into well-paid work would increase tax revenues to sustain the pension system.
After decades of kicking the can down the road, the UK has run out of road. The state pension crisis can no longer be ignored by politicians. Hard choices must be made to put the system on a sustainable footing for future generations. Hiding from reality and preserving an unaffordable status quo are no longer viable options.
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