This is because the Government will be paying out more on welfare payments than it will receive in National Insurance contributions (NICs), according to the Adam Smith Institute (ASI).
Due to the inflation-busting triple lock mechanism that’s currently in place, the total cost of the state pension has skyrocketed.
In April, the state pension rose by 8% to £11,502.40 per year for those who reached the state pension age after 2016, which the think tank projects will mean the state pension will be far more than the £8.9trn when it was last measured in 2021.
The mechanism pays retirees the highest amount out of:
- Inflation, as measured by the Consumer Prices Index (CPI) in September of the previous year
- The average increase in wages across the UK
- 5%
There are concerns over the sustainability of the Government ‘promise’ to pensioners, which was first introduced by the Conservative-Liberal Democrat coalition in 2010.
How life insurance can benefit your health and wellbeing over the decades
Sponsored by Post Office
At its current rate, by 2040 there could be almost 23 million people claiming benefits – like the state pension – but just 34 million UK workers able to fund it through tax contributions, according to ASI.
However, while the current pension deal has seen the average person born in 1956 earn £291,000 more than they put in, many retirees are still struggling due to the cost-of-living crisis.
Indeed, the number of pensioners in poverty has surged to one in five, with over a third (39%) eating less than they should to save money, a study from the Centre of Ageing Better found.
‘Inherent unfairness will become more entrenched’
Looking to the future of the triple lock, both the Conservatives and Labour have committed to the system if they win the general election. Maxwell Marlow, director of research at the ASI, believes that is alarming and alternatives should be considered.
Marlow said: “It should alarm us all that the state pension could become fiscally unsustainable within the next 10 years.
“Working-aged people are already taxed to the hilt in order to universally subsidise pensioners, and this inherent unfairness within Britain’s economy will only become more entrenched as our demographic deficit worsens.”
He added: “The Government should look to review the state pension as a matter of urgency, either through means testing so that those with a net worth of more than £1m are ineligible, or by moving to a double lock system to avoid the destructive ratcheting we see today.”
