State pension fund could run out as soon as 2032

Published by Helen Knapman on 10 January 2018.
Last updated on 10 January 2018

State pension fund could run out as soon as 2032

The balance of a fund that pays the state pension is expected to “fall rapidly to zero around 2032”, according to the Government Actuary’s Department (GAD).

This could mean workers under age 50 face paying more out of their income to maintain the state pension.

State pension is the main benefit (over 90% of the expenditure) paid from the Great Britain National Insurance Fund, which is financed by workers’ and employers’ national insurance contributions.

But the most recent five-year review from the GAD (published in October 2017) warns that if the fund continues to cover the current form of state pension and other benefits, either the fund’s income has to rise or expenditure has to be controlled.

In its December 2017 newsletter, the GAD says: “The current balance in the fund is comparatively low: just over 1/5th of annual expenditure on benefits.

“Although it is expected to increase until 2025, after this the balance is expected to fall rapidly to zero around 2032. The previous review similarly showed that the fund was likely to be exhausted by the mid-2030s.” 

It suggests that a short-term solution to boost the fund’s value is for Parliament to approve a ‘Treasury Grant’. A longer-term view, however, is to increase national insurance contributions – the GAD suggests a 5% rise could be needed.

Currently, national insurance is 12% of employee’s pay for those earning £680 to £3,750 a month. See Moneywise’s 2017/18 tax rates guide for more information on this.    

‘Latest analysis paints a grim picture for the future of the state pension’

Tom Selby, senior analyst at AJ Bell, comments: “The latest analysis from the government’s own actuary paints a grim picture for the future of the state pension. The harsh reality is that, as demographics bite and the Baby Boomers flood towards retirement, the cost of the state pension will inevitably balloon. 

“In fact the Government Actuary predicts the fund used to pay out benefits will be exhausted in around 15 years’ time, at which point the Treasury will have to step in to ensure people continue to receive their state pensions. 

“These Treasury grants will kick in at £11.6 billion a year in 2030 and increase rapidly to £151 billion by 2060 and £482 billion by 2080 if the system stays as it is. The options open to policymakers to plug the funding gap are not attractive. The government actuary reckons a 5% increase in national insurance contributions would do the trick – hardly a realistic route for any politician wanting to maintain a grip on power.

“Alternatively, the state pension age could rise further, the value of the payment could be cut or other departments could have their budgets drastically reduced. In reality, long-term costs will likely be reined in by a combination of the above, but make no mistake – if this nettle is not grasped today, it will be forced on policymakers tomorrow.”

The Moneywise view

In December it was revealed that the UK’s state pension is the least generous amongst 35 advanced economies, with Turkey, Portugal and the Netherlands ranking top for their far superior schemes.

These shocking findings, together with the latest news about the grim prospects for the state pension fund, highlight the importance of not relying on the UK state pension.

If you are self-employed, don't work, or want to supplement your workplace scheme, a personal pension is a sensible way to save for retirement. Read our Guide to personal pensions.

Visit Moneywise’s pensions section for more of the latest news, information, and advice. 

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Leave a comment

Why am I not surprised! Since

Why am I not surprised! Since I am 81 it should not affect me but it certainly will my grandchildren and their children. With the NHS also in meltdown when will our politicians realise that Charity begins at Home! I would be criticised if I gave all my income to my Grandchildren and then claimed income support yet here we are giving £billions away in foreign aid, often to countries who squander it. We need to recognise our own problems and deal with them first before trying to sort other peoples problems.

Could not agree more, have

Could not agree more, have been saying this for years. Couldn't believe we were still giving aid to Russia until a few years ago. We are still giving it to India who has a space program. It seems like the government had set up all these direct debits years ago and nobody ever checked to see what was still getting paid. They should maybe let Martin Lewis sort it out for them.

Agree with your comment.

Agree with your comment.

i have paid in continuously

i have paid in continuously since i started work at 15, now 6 months away from drawing my state pension i expect a return on my money.

I've paid all my life 50

I've paid all my life 50 years in November 2018 been robbed of my pension credit for years thanks Tory/liberal democrat party BASTARDS

I thought the government's

I thought the government's 'pension fund' had been exhausted years ago, having been frittered away way on things like tax cuts and fighting wars, pensions being funded from tax revenue. Successive governments, especially the current regime, just keep on running away from the problem. The public have been brainwashed into believing that higher taxes and n.i. contributions are a 'no-no', but pensions have to be paid for somehow - that goes for the NHS as well. Get real you politicians!

Well said Big Bear, don’t

Well said Big Bear, don’t forget these wars that we involve ourselves in cost the taxpayers an absolute fortune in money and most importantly loss of innocent lives, these wars are all about making certain people a hell of a lot of money, they are all organstrated for this purpose, but as usual the people pay the price of the Rich cowards!

If more people had started

If more people had started work earlier (I started when I was 17, my husband when he was 15) and so paid in to the system for longer, we wouldn't have this problem. There has been too much emphasis on higher education and so people are not starting work until well into their 20s which means at least five years of lost contributions. And, of course, there are so many people who are drawing the State pension who have not paid in a single penny! Payments out should be based on contributions over the years.

You are right, we started

You are right, we started work at 15 and got pension at 65, 50 year working life for the old lower pension, now they get new increased pension nearly £38 a week more after only 35 years credits and not affected extra income or savings. The young are quick to moan but they are better off than the older ones ever were. Everyone should have to wait 50 years from first full time employment and contributions, some older ones have had to wait over 50 years due to age chnge.

I started work at 15, and

I started work at 15, and worked until I was 66, my pension now, including the so called second pension, is only a fraction over GPC which is a passport benefit allowing the recipients access to full housing and council tax benefits , dentistry, spectacles, just about free everything.

Stop paying pension benefits

Stop paying pension benefits to foreigners that come to UK without paying full contributions for full period which come out of pot we have paid into. Why should those on GPC who never paid enough into the sysytem get more than those who paid full contributions, those on GPC also get many more benefits than those who have paid full credits. I know of one who never paid any NI contributions or income tax all her life gets £159.35 weekly plus has a small works pension on topshe has not declared, free house through housing benefits, greatly reduced Council Tax, voucher for spectacles, free dentistry, extra £140 off energy bills on top of £200 WFA, reduced water rate bills, no charge for solicitor to draft a will and lots more hidded benefits. It pays to under pay NI credits so you can claim GPC as you will be much better off for rest of your life, allowed upto £10 savings without affecting what you receive, will also get free social care and no care home fees. How can this be classed as a fair system, those who paid full credits with no second pension are the poorest pensioners.

Should have read £10K in

Should have read £10K in savings not £10.

As a country we need to cut

As a country we need to cut the foreign aid budget and look after our own people first. If there is any over then we can consider aid to others. If not we will become a fith rate country with poor health and more poverty.

Stop giving money away then.

Stop giving money away then. Money abroad tor ridiculous things.letting more people into this country and giving them loads of money and treating people in hospitals from abroad charge them.alot of people can see this why cant the goverment.

What a total surprise. I

What a total surprise. I never would have seen that coming.... I do wonder why my comments on other articles touching upon government expenditure / pensions / benefits / general fiscal slackness never seem to make it through the filters. Is it fear oif scaring the horses? Well you might have finally had to give them a mild surprise. The NI system was flawed from inception, based upon grossly negligent actuarial models, fashioned in turn to fit the designs of the Attlee government. It's time to pay more taxes and/or cut benefits. Nice to see you finally admit it.

Perhaps if the state pension

Perhaps if the state pension fund only paid out to those who've paid in it would last longer.

It stinks, the amount of

It stinks, the amount of money paid into the pension and a hell of a lot of people pass away before they can draw it. Tell what happens to all that money,

It pays for the scroungers

It pays for the scroungers and foreigners whonever paid into the system, GPC gives them a better pension than those that have paid in for 50 years. Some od us get a bit more from Graduated pension we were made to pay into, it was a com to take us above limit for GPC, we could of saved that extra and drawn GPC making us better off at retirement.

What should we expect in a

What should we expect in a country that's priority is the wealth and care of the bankers.

The government is not fooling

The government is not fooling me, everyone in the uk is taxed to death as it is so where does the pensioners money go? Dont tell me the pensioners are using the miserly state allowance to invest abroad? or maybe they do drugs and the money dissapears over to Colombia, is it all tied up in direct debits to timeshare owners in the costa del sol? The money is most likely spent in the uk trying to keep a roof over their head and to keep warm and put some food in their bellies. Dont buy these lies, if we are in so much trouble we cannot look after societies most vulnerable then why are we not looking into turning into a neutral country like Ireland or Switzerland, think of the money that can be saved on weaponry,now that is money that dissapears mostly into thin air, or tackle the disgrace that is overpriced drugs so our nhs doesnt need to be so much of a cash cow.
Why is it always the people that have to fork out and dont even get me started on carillion.