If you are relying on the state pension to pay for a few luxuries in retirement, then you may have to think again as the government fund paying the cash is draining fast.
Financial experts responsible for making sure the country has enough cash to pay state pensions and benefits say the current rate of national insurance contributions is not enough to sustain the outgoings in the long term and will have to go up.
The experts, based in the Government Actuary’s Department (GAD) want to step up the payments every worker makes into the fund by at least 5%.
An alternative suggestion is to change the law to lift the current 17% cap on the level of benefits and pensions that can be paid directly from income tax revenues.
Either way, the money will come from taxpayers.
The number crunchers warn that if the government takes no action, the National Insurance Fund will drop away to zero by 2032.
More money needed
“If the system is to continue to cover the current form of state pension and other benefits, then either the fund’s income has to rise or expenditure has to be controlled,” the report said.
Tom Selby, a senior analyst at investment platform AJ Bell, explained the government has some tough decisions to make over the state pension.
“The latest report from the GAD is a brutal reminder of the fiscal reality of funding the UK’s ageing population. I suspect most people aren’t even aware that such a fund exists, let alone that it could run out in less than 15 years,” he said.
“The reality is that to ensure the state pension remains affordable, the Treasury must either commit more funds from elsewhere, increase the state pension age, reduce the value of the state pension or hike NI contributions. None of these options are particularly attractive politically.”
The new state pension, for retirees reaching the national retirement age after April 5, 2016, rises by £4.80 to £164.35 a week from April 6, 2018.
For those that retired before April 6, 2016, the state pension payment goes up from £122.30 a week to £125.95 a week.
