PensionsApr 25 2023

State pension costs to surge in next 5 years

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State pension costs to surge in next 5 years
Pexels/Alaur Rahman

The state pension cost an estimated £112.5bn in 2022/23 and is expected to rise to £139.5bn in 2027/28 in real terms, according to the Department of Work and Pensions.

In its latest benefit expenditure and caseload figures, DWP said in nominal terms the estimated increase is more – from £109.7bn in 2022/23 to £147.2bn by 2027/28. 

In 2022/23, an estimated 12.6mn people claimed the state pension and this is expected to rise to 13.1mn by 2027/28.

Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said this was “all thanks to the fact we are living longer”.

“This is great news but undoubtedly puts real pressure on the smaller working population who shoulder the cost,” she said. 

“State pension costs are surging with the government predicting eye watering increases over the next five years. 

"We recently saw the government decide to postpone an increase in state pension age to 68 on the basis of increases in longevity slowing down. This is fair, given the very real prospect that many people simply are not able to keep working until their late 60s, but the headache remains of how to contain these burgeoning costs.”

The figures found that there were an estimated 1.36mn pension credit claimants in 2022/23 which is expected to rise slightly to 1.38mn in 2023/24.

Morrissey said she expects the number of pension credit claimants to decrease over time as more people qualify for the full new state pension. 

By 2027/28 there will be an estimated 1.15mn claimants, she explained. 

Morrissey said the pension credit is a hugely under-claimed benefit that boosts the incomes of the poorest pensioners and operates as a gateway to other support such as help with council tax and eligibility for the £900 cost of living payment. 

“Government has tried to boost awareness of pension credit in recent months and the figures show a small boost in estimated take up from 1.368mn people in 2022/2023 to 1.38mn the following year,” she said.

“This may look small but balanced against the fact we expect to see the number of pension credit claimants drop over time as more people retire on the full new state pension then the uptick could be bigger than first thought. 

“However, it’s likely we still have a long way to go before everyone who qualifies for this important benefit gets it.”

Elsewhere, Morrissey argued that the state pension age decision is likely to be revisited after the election and so could see further changes, but the role of the triple lock is also likely to come under the spotlight. 

“Brought in over a decade ago to make sure pensioners received decent state pension increases, the triple lock has also been criticised in recent years for being intergenerationally unfair,” she said.

“The time has come for a review of the state pension and the triple lock’s role within it to make sure it remains fit for purpose.”

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