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State pension fund running out, warns government actuary

Report says national insurance contributions must rise by 5% otherwise the state pension fund will not be sufficient.

State pension fund running out, warns government actuary

The body responsible for advising the government on the state pension has said national insurance contributions may have to rise by 5% to fund the state pension over the long-term.

The Government Actuary’s Department (GAD) said the current balance of the national insurance fund was ‘relatively’ low.

This fund, which is used to pay benefits including the state pension on a pay-as-you-go basis, will fall to zero by 2032, the GAD said.

‘If the system is to continue to cover the current form of state pension and other benefits, then either the fund’s income has to rise or expenditure has to be controlled,’ the report said.

The GAD suggested two ways to increase the income of the fund. Either the government would have to raise national insurance (NI) contributions by 5% higher than the current rates – a move it admits would be ‘particularly politically sensitive’.

Or it could introduce legislation to change the law which states only 17% of benefits paid by the fund can be provided from general income tax revenue. But the GAD says it would require primary legislation to remove this cap.

Tom Selby, a senior analyst at AJ Bell, said the government had difficult decisions to make over the state pension.

‘The latest report from the GAD is a brutal reminder of the fiscal reality of funding the UK’s ageing population. I suspect most people aren’t even aware that a NI fund exists, let alone that it could run out in less than 15 years’ time,’ he said.

‘The harsh reality is that, in order to ensure the state pension remains affordable, the Treasury must either commit more funds from elsewhere, increase the state pension age, reduce the value of the state pension or hike NI contributions. None of these options are particularly attractive politically.’

Adrain Boulding, director of policy at NOW Pensions, said the report showed 'just how precarious the state pension really is'.

'Increasing NI contributions is easier said than done and raises uncomfortable questions around intergenerational fairness.'

The government has faced challenges in its efforts to increase NI rates. Last year chancellor Philip Hammond was forced to U-turn on his policy to increase NI contributions for the self-employed. 

15 comments so far. Why not have your say?

Law Man

Jan 10, 2018 at 15:19

The concept of a state pension is, or should be, that you get what you pay for. Given the 'pensions crisis' for people retiring in 2025-45, the state pension should gradually be increased; and NI contributions raised to pay for it.

This philosophy is why I liked the original SERPS pension.

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Tom Mozy

Jan 10, 2018 at 15:29

It will always be in shortfall position. Every govt over promises to buy votes. Its a ponzi scheme of epic proportions. New workers have to be found every generation to pay benefits of the one before it. Berrie Madeoff would be a great candidate to run it.

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Ian Gregory

Jan 10, 2018 at 15:59

Stop sending billions abroad when we need it here

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Mark Stringer

Jan 10, 2018 at 17:29

All roads lead to Parliament. The thieving, lying, incompetents have (as did their actuaries) since the 60's known that there was a problem building.

Unless people actually do something about the job for life MP's, like restricting their tenure to a max. of two terms and to do that would need a national sea change in voting habits to vote for independent candidates (not UKIP, but independents) to break the party system then we are gong to keep getting taken for a ride.

It also goes to the heart of civic and financial education because so many are ignorant of how the system works.

Sadly, the MP's know that a combination of greed,stupidity and bone idleness makes their electioneering b/s so easy to accept as does the tuppeny seat cheerleaders in the media.

Of course, common sense makes it easy to simply say raise NI tax take and yes, a bit like if all road tax was used for the benefit of our roads, but it isn't and the sheer wastefulness of the bottomless bucket makes that unwise.

No political party is going to tell the truth over their stewardship of waste and lies so the pensions apartheid will continue where those who rely upon the state pension are subsidising the gold plated public sector and especially via council tax.

We are only as strong as the weakest link and there are plenty of weak links with the vote in the electorate chain.

We've seen what the party system of the past 50 years has given us so if the nation wants change then we need to vote for it.

I don't think anyone expects perfection from Parliament after all they are almost human, but if NI is eventually raised then at least a degree of truthfulness.

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Michael Stevens

Jan 10, 2018 at 17:50

The State Pension Age was 70 when it was introduced in 1909.

The Age should be increased to 70 by 2040.

The qualification was 44 years of N.I for a full pension

This should be increased from 35 to 40 by 2022. Labour Government had reduced to 30. ! am retired and paid 47 years for he same pension as a person who had only 35. Is that fair?

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Peter in Cornwall

Jan 10, 2018 at 18:08

GAD. "most people aren't even aware that a NI fund exists." Oh! So where is the evidence in the public accounts of it's existence, where is the money invested that is going to run out, and what returns are being made on the declining fund pot and who is managing it and where is their performance reported in a form that is widely available to the taxpayer and in the public domain?

I smell a rat.

I hope I'm wrong, but I've always believed that all Labour and Conservative/Liberal governments supported by all elected politicians at Westminster have been running a Ponzi scheme since 1948 of such proportion that makes Bernie Madoff look innocent.

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Sebastian Bear

Jan 11, 2018 at 12:35

Peter in Cornwall here are the latest accounts for the fund

Interestingly the 'fund' ran out last year and the Treasury just topped it up with little fanfare - so this is not really news at all.

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Mark Stringer

Jan 11, 2018 at 13:35

Sebastian Bear,

It's a nominal fund/account. The whole nonsense behind the social security budget is the ongoing news, but yes, certainly not new news.

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Mark Stringer

Jan 11, 2018 at 13:52

Michael Stevens, I disagree that the state pension age should be 70 anymore than it should be 66,67,68...Yes, in theory it is a great idea, but in practical terms it is unworkable for most.

Aside from the waste of governments we have the indebted self entitlement university rituals where most who attend have tens of thousands around their necks at age 23/24 when some 30 plus years ago they would have been working from age 16,17,18.

They might not need 44 years NI contributions as we did, but even paying in for 30 years they won't be able to claim until 70.

I appreciate that they still won't have made as many years contributions though.

It is absolutely down to the mismanagement by successive governments aided and abetted by millions of voters.

Each solution to counter the retirement problems of income and at what age is hampered by those same governments.

Buy to let pensions? Sure, then who pays the increasing rents when they can't work and can't afford it out of the BOAP. It's a huge iceberg of connected issues.

Even China has a lower retirement age and their social engineering makes ours look like playtime.

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Michael Stevens

Jan 11, 2018 at 16:56

Hi Mark,

You said nothing, except blame the previous governments. What is the answer.

Mine is simple and practical

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magic beans

Jan 13, 2018 at 09:54

How do other countries square the circle?

I keep hearing about foreign pension funds buying bits of the UK.

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Mark Stringer

Jan 13, 2018 at 10:20

Michael Stevens, you can't blame future governments can you?

Well, what's the saying, "if you don't know history...."

Simple, yes, but unworkable for what I hope are the reasons I gave.

We have shortened the years paid in, unrealistically lengthened the time before it can be paid, reduced the amount on which it can be paid for and shifted the burden to those who can be taxed.

The solution as always rests with voters, but they mostly like sheep won't take the medicine to change things at grass roots level.

It is because of past governments that it can't and won't be changed.

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Mark Stringer

Jan 13, 2018 at 10:48

Magic Beans, we have been known for a long time as "treasure island" for foreign investors for a reason. They can't rip off their own people as easily.

I have friends in Italy and to illustrate my oldest friend of 40 plus years claimed her state pension at age 57, €13,000 plus a year, her husband also claims similar sum, they both still work full time. Her former business partner claims his state pension plus a council pension and navy pension and still runs the business. The council and navy pensions kicked in well before before age 50.

Now Italy might well be up the creek without a paddle debt/deficit wise, but so are we and it seems to boil down to semantics when talking about national debt nowadays.

In Germany a friend who worked in the public sector joined the rush a few years ago to take the money and run as the drawbridge was being pulled up on their generous public sector pensions.

Maybe it is more about the unfair distribution of our now over generous public sector pensions for people who joined the state as they couldn't cope with a commercial environment but after comrade bliar started to buy votes he and his cronies further indebted our already indebted the system for generations to come.

Even the poster boys of the state of nirvana of Sweden and Denmark are putting off the day of reckoning.

In short I don't think that they do square the circle anymore than we do they just seem to accept the financial consequences of further debt.

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Jan 13, 2018 at 11:49

The problem was made worse when one G Brown started taking billions out of the fund for the NHS because he did not have the political courage to increase general taxation to pay for it. The NHS is used by everybody, not just NHI payers

and so should be funded out of general taxation, and not by people who have to rely on the state pension for an income.

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Michael Stevens

Jan 14, 2018 at 19:53

It must be remembered that Labour under Tony Blair increased the MP's Pension scheme to the Best available. {We are OK Jack]

The Conservatives voted against this.increase. The Lib Dems also supported it.

No one has said what should be except me

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