Why the state pension age is bound to rise

Published by Faith Glasgow on 09 March 2018.
Last updated on 09 March 2018

Why the state pension age is bound to rise

Total UK pension liabilities increased by a massive 15% over the five years to 2015, rising to £7.6 trillion from £6.6 trillion in 2010, according to the latest pension statistics from the Office for National Statistics. 

The bulk of this amount (£4 trillion) relates to state pension obligations paid for out of tax, with unfunded public sector salary-related pensions (paid to teachers, nurses, civil service employees etc) accounting for £900 billion plus and a further £300 billion going mainly to funded local government pension schemes.

Steve Webb, director of policy at Royal London, highlights the disparity between pension obligations and funding. He says: "The numbers in this report are truly mind-boggling.   Today’s population has built up £7.6 trillion in pension promises but has only set aside about a third of that amount to pay for them.  The rest will have to be financed by tomorrow’s workers.   

"If we are to have a meaningful debate about how we pay for an ageing population and about fairness between generations, figures like these need to be published on a regular basis and should inform policy-making".

Tom Selby of AJ Bell points out that the huge hole of unfunded state pension entitlements is underpinning the need for further delays to the state pension age in future decades. "State pension entitlements are worth more than double UK GDP," he says; "these are promises that will, ultimately, have to be paid for by future generations either through higher taxes, a lower state pension income or a later retirement age."

Perhaps surprisingly, private sector final salary schemes liabilities still account for £2 trillion of the total, while defined contribution workplace schemes are worth only £240 billion, despite the high profile over recent years of auto-enrolment and the importance of employees boosting their pension contributions. 

However, Mr Selby observes that the defined contributions element "is likely to surge in the coming decades". He says: "The roll out of automatic enrolment and increasing of minimum contributions to 5% in April this year and 8% next year will push the value of retirement pots up further."

In addition, the ONS figures do not account the value of private investments in Sipps. These have "increased dramatically in recent years, particularly following the introduction of the pension freedoms in 2015," adds Mr Selby.

"This is all part of a huge social shift away from the paternalism characterised by defined benefit pensions, and towards individual responsibility for retirement outcomes through DC," he says. 

This article first appeared on our sister website Money Observer.

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Please note your article

Please note your article about teachers pensions is completely false.

Unlike many public sector pensions, the teachers’ scheme is fully funded by teachers and their employers contributions. We need an urgent apology and you need to put this right immediately.

The 2016/17 report for the

The 2016/17 report for the Teachers' Pension Scheme clearly states that it is unfunded: "The Teachers’ Pension Scheme (TPS or Scheme) is a statutory, unfunded, defined benefit occupational pension scheme split into three distinct sections." Here is the link to the report: https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...

I've always believed that the

I've always believed that the State Pension age will be at least 70 for those retiring 2040 onwards. Not only that, but nobody should be surprised if the State Pension becomes means-tested rather than universal. Just that change would wipe out a lot of the State Pension burden - make people fund their own pensions (and other retirement measures) and then turn round in a few years' time and tell them that they no longer qualify for the State Pension because of their level of self-provision. I'd bet my house on it - will probably have to sell it to pay for care in old age anyway, so losing it wouldn't cost me anything if I did lose the bet....

Well if that is the case,

Well if that is the case, well how is it that our lazy, expense grabbing MP’s can retire at 55 and receive massive pensions, and for what? If the general public have to work longer, then you can’t have two rules, get the leeches to work longer as well.

The high pension is only for

The high pension is only for the friends of government,(All parties) including the higher civil servants.. MP's are self employed.!! Why should they have pension from government on retiring early.? They also have a large lump sum of money if they lose their seat. Britain is the most corrupt Country on earth.

It's due to rise because of

It's due to rise because of Tory mismanagement of pension funds/not funding it properly as they let companies they invest in/have donors from get away with and to penalise poor, low income elderly who they want to force them to work into the grace so they don't have to pay them a pension anymore!

Not true that teachers

Not true that teachers pensions is unfunded and has to be paid for by government. The TP is a standalone scheme that invests it's contributions from teachers and the employer's just like other pension funds. If the problem is that teachers, nurses, firefighters, police etc are employed by the state, hence the government is responsible for the employer's contribution. Then cease worrying the state is gradually privatising all of these and hence will reduce its liability over time. Except for the MP 's platinum plated pensions

The 2016/17 report for the

The 2016/17 report for the Teachers' Pension Scheme clearly states that it is unfunded: "The Teachers’ Pension Scheme (TPS or Scheme) is a statutory, unfunded, defined benefit occupational pension scheme split into three distinct sections." Here is the link to the report: https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...

I’ve paid nation insurance

I’ve paid nation insurance etc for 45 years if I can’t claim it why have I paid it. I want my money back. This is grand theft can we sue the state

If they stopped paying

If they stopped paying foriegn people vast amounts of our money in pensions and welfare payouts and look after the people who have paid into the system all theyr working life. And put back the BILLIONS the government took out of the pension fund. And where have all the monies gone from the people who never lived long enough to claim theyr state pensions.

Leave the old age pension

Leave the old age pension alone, we are the ones who worked to keep the country together after the so one world war.

State pension age being

State pension age being increased by the people who get gold plated pensions and retire at a younger age than the people who they are forcing to retire later and more likely to work to their graves!

I have seen you reply. What

I have seen you reply. What the document says is this

"The contributions partially fund payments made by the Scheme with the balance of funding provided by Parliament. The Scheme’s administrative expenses are borne by Scheme employers ... "

So your statement that teachers' pensions are wholly funded by public funds is incorrect. I request that you make this clearer to avoid discrimination against teachers, and that you research thoroughly the extent to which Parliament contributes. I suspect that the reality is that older members receive greater state subsidies than more recent pensioners, owing to the changes in contribution rates together with a diminution in the value of the benefits received.

In my personal case I would be receiving marginally more if the contributions I had paid over the years, not allowing for any investment income, but allowing inflation, less the tax free lump sum received, had been used to purchase an annuity at the rates prevailing in February 2014.

Thomas Packer

Myself and wife could easy

Myself and wife could easy plan for our future but the government will not let us. we could save them a lot of money but they don't want that. They want total control. Yes even the Tories!!