Gov’t spend on pensions to rise to £420bn by 2062
Commentators argue steep projected increases can only lead to cuts, making saving into a private pension all the more important.
The Department for Work and Pensions has predicted basic state pension benefit expenditure to reach £302bn in the next 50 years while total expendature will reach close to £420bn, almost five times the spend on pensions today.
Currently, basic state pension benefits incur an expenditure of £60bn, and all state pensions - including for example pension credit and second state pensions - cost the state £90bn in 2011/12.
However, even when adjusted for inflation the DWP believes this figure will steadily increase for the next 49 years and reach £302bn by 2061/62, according to new figures. Correspondingly, the figure for total state pension expenditure will reach £419bn.
This revelation comes at a time when Prime Minister David Cameron is under increasing pressure to address pension expenditure, will some critics calling for cuts to pensions rather than welfare as the government looks to get its deficit reduction plan back on track.
Laith Khalaf, pensions analyst at Hargreaves Lansdown, said: “The real crunch is how on earth we are going to afford this. The answer is we aren’t.
“The government is almost certainly going to have to raise retirement ages and water down state pension benefits. The bottom line is there is little other choice. It may well do this on the sly, by tinkering with the inflation link, or indeed by changing the definition of inflation which they are considering at the moment.”
“Tomorrow’s pensioners are likely to suffer death by a thousand cuts to their state pension entitlement.”
He added that these projections give further credence to advocates of auto-enrolment and make it all the more important that individuals build up retirement pots of their own instead of planning to simply rely on the state.
“Because what they get from the state might be like that pot of gold at the end of the rainbow. They might actually catch up with it, only to find out it is little more than a few chunks of lead.”