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'Brexit' heralds 2020 state pension crunch time

State pension predicted to come under severe pressure in 2020 as impact of EU exit on UK's demographics takes its toll.

 
'Brexit' heralds 2020 state pension crunch time
The historic decision to leave the European Union could have a severe impact on Britain’s pensioners retiring in 2020.

Pensions expert Steve Bee said the economic impact of the 'leave' vote coupled with lower immigration could have a disastrous effect on the state pension.

‘The state pension works on a pay-as-you-go basis where people at work fund the retirement income of people who have left the workplace. The best thing you can have is lots of people at work paying tax and low numbers of people in retirement. We could afford generous pensions if this was the case,' he said.

‘If the opposite happens where we have a large number of people entering retirement and fewer people paying tax or poor economic conditions then I would expect pensions to be smaller.’

This is a particular problem for the UK as its baby boomer generation - classed as those born in the 1960s, not in the 1950s like the US, were due to retire in the 2020s.

This sharp increase in retirees will coincide with ‘fewer taxpayers [because] there will be fewer people from abroad and an economic reality that will not be so good’.

Bee predicted that the state pension would not only be less generous but the state pension age would be pushed further out for those retiring in the 2020s.

‘My guess is that in 2020 we will see smaller state pensions or we will see an increase in the state pension age - my personal view, is that we will see both. You’ll get your pension later and it will be worth less,’ he said.

There are also concerns about whether the state pension triple-lock, which sees pension income rise at the higher of inflation, average earnings or a minimum of 2.5%, and higher rate tax relief on pensions, will be scrapped as part of a post-referendum austerity drive. The triple-lock costs £6 billion a year while higher rate tax relief costs £34 billion a year.

However, Adrian Boulding, a pensions expert at the Tax and Incentivised Savings Association, said hitting long-term savings and pensions wouldn’t be profitable enough for the chancellor, whoever that happens to be by the end of the year.

‘Nothing is going to happen instantly, he said. ‘If the government has a need for money short-term...then you do not attack something that is long-term like pensions. You do something that is short term like putting an extra 10p on a litre of petrol...or you can raise money quickly through sin taxes - such as on cigarettes and beer - that you can change from 6pm that night.’

Boulding said the referendum could push pension and saving legislation to the back of the agenda as the government ‘clears space’ to deal with removing UK legislation from that of Europe.

If this is the case the new pensions bill that was expected this year to strengthen workplace saving regulation could fall by the wayside. It could also affect the introduction of the lifetime ISA.

‘There are question marks over whether the new government will carry on; we were supposed to have a new pensions bill with tighter mastertrust regulation in it which is something everyone supports but will that now have to wait?’ he said.

‘Lifetime ISA is another area, it is brainchild of the current chancellor and when we get a new prime minister they may say they need a new chancellor... and that new chancellor may not think lifetime ISAs are a thing they want to do.’

7 comments so far. Why not have your say?

Kenneth

Jun 25, 2016 at 09:43

You can't have more and more people entering Britain just to support the state pension system. Just imagine what the population would have to be to support the people who have come to Britain in recent years. Our pension system is a ponzi scheme.

Ponzi Scheme Definition | Investopedia

A Ponzi scheme is a fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for older investors by acquiring new investors. This scam actually yields the promised returns to earlier investors, as long as there are more new investors.

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Robert via mobile

Jun 25, 2016 at 11:51

What about pensioners who work and still paying tax are they not helping to pay for there own pension?as well as paying into the pension hole for the last 50 years even though you now only have to pay 35 years the pension system is a joke so I wish you would stop saying if people don't come into the country the pensioners will have to have reduced pensions let's cut overseas aid remember charity begins at home

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D Cage via mobile

Jun 25, 2016 at 17:03

I don't really believe this article. The state pension is funded from total government revenue just as all other costs such as defence and health and education. There is no way that money received from N I contributions is ring fenced and 100% distributed as a state pension. But I would guess that post Brexit state pensions will be chipped away at in order to reduce public spending and perhaps to stop bribing pensioners as it probably doesn't work !

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Peter in Cornwall

Jun 25, 2016 at 19:31

Kenneth is quite right. It has been in the public domain for more than ten years that unfunded and exorbitant public sector pension liabilities will ruin our economy in the future. The recipients "entitlement" demonstrates poor judgement and will disadvantage their children's generation.

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Ozpom

Jun 25, 2016 at 20:00

Quite correct . If we follow the argument that we need more and more workers to pay for current pensions, what happens when those extra workers retire?

We will need more workers than before, to pay for their pensions and so it goes on from generation to generation.

Until ultimately we have a population of 100 million plus.

.This was given to me by a German as a justification for Merkel saying "come on all in" ----for pension payments in the near future.

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Mark Stringer

Jun 25, 2016 at 23:38

It is what we have allowed the establishment to create -pratfall economics.

Spend what you never earned and borrow what you can't repay. Sadly, it is what our country's balance sheet is made up of, that and the mickey mouse GDP.

We have a diminishing tax base and a greater call on those diminishing taxes.

But apparently a low wage economy made up of immigrants is what is needed and yes, we can certainly see why they are needed in greater numbers if most are barely earning enough to make ends meet here.

We really and truly are ruled by a bunch of elitist clowns so out of touch with reality that we can have a so called chancellor who thinks missing every target set is an achievement and his man at the BoE acting like a fairground barker, shouting "raise rates,lowers rates" so often that I wonder if he actually knows what he is barking out anymore.

I don't know about working to 70 for future genrations, more like 90.

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Pilgrim

Jun 29, 2016 at 16:37

@Mark Stringer,

I agree. Just like the referendum. All sound bites and no sound thinking.

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