State Pension  

State pension cost grows £1.8bn

State pension cost grows £1.8bn

The cost of the state pension has increased by £1.8bn, despite the government hiking the state pension age for women in the past year.

According to figures from HM Revenue & Customs for the year to March 31, 2019, published today (October 15), the government paid £95.5bn for the state pension in 2019, an increase of 2 per cent from the £93.7bn it paid in 2018.

This is despite the women’s state pension age hitting 65 in November 2018 and a further gradual rise for both men and women to 66 by 2020, 67 between 2026 and 2028, and 68 between 2044 and 2046.

Tom Selby, senior analyst at AJ Bell, said the figures showed why the government feels it necessary to increase the state pension age in order to balance the nation’s books over the longer term.

Mr Selby said: “The cost of paying state pensions is ultimately borne by taxpayers today, and without increases in the state pension age that burden would rapidly become much heavier.

"What we don’t know yet is whether a Conservative government led by Boris Johnson will stick to this plan. 

“Clearly there are huge numbers of votes to be had among older people, and as a result I wouldn’t be surprised if pensions – and the state pension in particular – become a key [battleground] when we eventually get a general election.”

But Sir Steve Webb, former pensions minister and director of policy at Royal London, said life expectancy and the pension triple lock had more of an effect when it comes to state pension payments.

Sir Steve said: “The state pension spending line reflects three factors - state pension age, how long we are living, and the rate of the pension.

“Although the state pension age for women rose between the two years, longevity is still (slowly) improving and the triple lock means that the rate of the pension is generally rising in real terms.   

“The latter two are the dominant factors when it comes to year-to-year fluctuations in how much we spend.”

The government's National Insurance fund – which pays out the state pension and other social benefits - reached a surplus of £2.3bn in 2017/18 but this has more than doubled to reach £5.7bn in the year ended March 2019.

While this may suggest there is no need to make any changes to pensions, Sir Steve said the surplus number was “meaningless”.

He said: “It’s the difference between two large and volatile numbers. On the revenue side it depends on the health of the economy, the number of people in work, the level of wages etc.  

“On the spending side it depends mainly on the pension figure and partly [on] the rate of unemployment.”

The figures also show that there has been a surge in the last two years in the number of people paying voluntary national insurance contributions to top up their state pension record. 

In 2018/19, £119.3m was paid in voluntary ‘Class 3’ national insurance contributions, compared with just £12.8m in 2016/17.