Ageing population could cost Britain additional £750bn
Britain is facing a pension time bomb that could cost the country £750 billion unless it raises the state retirement age above 70, the International Monetary Fund (IMF) has warned.
In a new report, the IMF has calculated that the additional pension costs needed to cover the ageing population could cause the national debt to soar from 76% of gross domestic product to as much as 135% in coming years - an additional cost of around £750 billion.
"Nearly all countries have continuously underestimated how long people will live by an average of about three years," says the IMF. "With the private sector ill-prepared for even the expected effects of ageing, it is not unreasonable to suppose that the financial burden of an unexpected increase in longevity will ultimately fall on the public sector," says Laura Kodres, spokesperson for the IMF.
This means state pension predictions may be inaccurate, leaving governments with a shortfall.
"One effective way to offset the risk is to encourage people to work longer," says Kodres. "This can be achieved by linking the retirement age to expected developments in longevity." George Osborne is considering linking the state retirement age to life expectancy but it would be hugely unpopular.
In exchange for any lump sum – usually your pension fund – an annuity is “bought” from an insurance company and provides an income for life. When you die, the income stops. Annuity rates fluctuate daily and depend on your sex (although from 21 December 2012 insurers will no longer be able to use gender as a factor when calculating annuities), age, health and a number of other factors, so you have to pick the right one and, once bought, its terms cannot be altered, so seek financial advice.