Young people may need to prepare for end of state pension, peer warns

Young people in the UK may need to prepare for a future without the state pension, according to a peer who warned the country’s welfare system is struggling to cope with an ageing population.

Lord Craig Mackinlay, who served on the DWP and Public Accounts Select Committees, urged younger workers to wonder “if a state pension will be possible upon their retirement decades hence”.

The state pension is currently paid to around 13.2 million people across the UK and is funded through National Insurance contributions from the working population.

The state pension age is currently 66, rising gradually to 67 by 2028. Under the system introduced in 2016, most people need 35 qualifying years of National Insurance contributions to receive the full new state pension of £241.30 a week.

In an article for the Telegraph published on Saturday 11 April, the peer, chartered accountant and tax adviser who served as MP for South Thanet, cited the original basis for state pension provision in the UK.

This was that there would be “plenty of younger people at the base moving through the productive and taxpaying workforce with relatively few retirees at the top”.

However the “assumption” that the UK would operate such a societal pyramid necessary to make state pensions work, according to Lord Mackinlay, “currently looks like a slightly centre-bloated cigar.”

As such, the number of retirees will grow, “increasing to 14pc of the population by 2032, equal to 13.7 million, with a reduction in the number of children.”

Adding to this is the imbalance in income tax vs. welfare payments (£331bn to £333bn) and a forecast increased in claimants of Personal Independence Payments, projected to total 4.4 million by 2030-31.

Mackinlay points to alternatives such as the system in Chile, which replaced its state pension with private schemes in the 1980s after it came under strain from an ageing population.

However, such systems remain controversial and differ significantly from the UK’s current model.

The UK has already introduced workplace pension auto-enrolment in recent years, aimed at encouraging private saving alongside the state pension, but “mandated contributions were at levels realistically too low,” Mackinlay writes.

He continues: “Despite this Government’s obvious hatred of private pensions… the aphorism that ‘compound interest is the eighth wonder of the world’ mercifully still holds true.”

He concludes that there is “a bumpy ride ahead” and young people should seek to look after themselves with self-invested personal pensions.

The full Telegraph article is available to read here.