The state pension could become unaffordable for future Government in just 10 years time, according to new analysis from a leading think tank.
The Adam Smith Institute is warning retirement payments for future generations are at risk if Labour and the Conservatives keep their pledge to protect the triple lock going into the General Election on July 4.
According to the organisation’s analysis for The Telegraph, the price of paying the state pension will exceed National Insurance contributions as the ratio of workers to pensioners falls.
Due to this growing cost, the benefit will “very likely” become fiscally unviable between 2035 and 2045, the think tank claims.
Ahead of the upcoming election, the Adam Smith Institute is urging policymakers to take action to avoid future retirees having a worse-off pension than their parents and grandparents.
The Office for Budget Responsibility (OBR) estimates that overall pension spending will be £23billion higher in 2027-28 than it was at the start of the decade.
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State pension funding could collapse in 10 years time
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Maxwell Marlow,, director of Research at the Adam Smith Institute, outlined the current grim outlook for the pension system.
He said: “No Government department can run out of money. They can just keep on borrowing. But while the state pension won’t technically go bust, the amount of pain it will cause will be considerable.
“Working-aged people are already taxed to the hilt in order to universally subsidise pensioners.
“This inherent unfairness within Britain’s economy will only become more entrenched when, as is expected, there are more Brits claiming their state pensions than there are working to pay for them.”
Government spending on pensions has increased from two per cent of gross domestic product (GDP) in the early 1950s to more than seven per cent as of today.
The think tank cites that £1 in every £8 in public spending goes solely towards the state pension, whereas it was £1 in every £6 around five decades ago.
Among the proposals put forward to reduce the expense on the taxpayer is raising the state pension age.
The Longevity Centre suggesting it would need to jump to 70 years old by 2040 for the current worker-to-retiree ratio to be maintained.
However, this has been slammed as “unconscionable” by former pensions minister Baroness Altman.
She added: “It will mean that low earners and those with a limited healthy life expectancy wouldn’t even get a state pension or would get very little, whereas the healthiest and wealthiest would benefit the most.”
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Experts are calling for the triple lock to be scrapped
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Another suggestion has been raising taxes but this comes as Britons currently face the highest tax burden since the Second World War.
Despite the average employee being awarded a yearly £450 boost to their wages with the latest cut to the National Insurance rate in March, firms and workers have been hit by a £100billion tax raid since 2019, according to the Institute for Fiscal Studies (IFS).
This comes to about £3,500 per household at a time of significant wage stagnation in the UK.
The IFS has called for the Government to get rid of the triple lock and link state pension increases to earnings which could reduce Government spending significantly.
