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.
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How funds for the current state pension are collected, whether through taxation or national insurance contributions, should be discontinued for people who will be affected by this plan. This will allow the future pensioners to set aside funds for their retirement. They cannot be expected to pay for a benefit that they will never receive. The state pension is not a gift from the government. It is paid for by employees’ contributions and forcibly deducted from their wages throughout their working life. The same applies to people who have no choice and are now forced to pay privately for dentistry… Read more »
NI isn’t a pension contribution or a payment for services. It’s general taxation, a disguised income tax, and always has been.
Found this online Bob: “National Insurance Contributions (NICs) in the UK primarily fund the State Pension, which constitutes around 95% of the payments from the National Insurance Fund. They also fund various contributory benefits, including maternity allowance, bereavement support, and unemployment support (Jobseeker’s Allowance). They are distinct from income tax, aiming to build entitlements to these payments. The House of Commons Library Key Uses of NICs: State Pension: The main purpose, requiring a sufficient contribution record (usually 35 years for the full amount). Contributory Benefits: Supports payments such as New Style Jobseeker’s Allowance, Employment and Support Allowance, and Maternity Allowance.… Read more »
“notionally allocated”
Sums it all up nicely. Notional refers to “something existing only in theory, as a concept, or as an imaginary idea rather than in reality”.
I don’t know what your problem is here. The fact is that 95% of National Insurance contributions goes towards state pensions.
It’s a Ponzi scheme so if younger people stop these payments as you propose current retirees will be unfunded. Where do you suggest the money comes from to pay for current retirees?
That is for government to figure out. The State Pension is, among other benefits, part of the wider social contract that has to some extent underpinned the stability of the UK. Divisive elements are forever doing their damnest to tip the whole thing over. Ripping off current pensioners and depriving future pensioners of a decent benefit is a sure fire way of finding advocates of such changes hanging from lamp posts. Sounds like something out of Jacob Rees Mogg’s playbook for progress.
The intergenerational social contract was broken by Brexit. Nothing is off the table because parliament can’t bind its Gen Z run successors.
Making Brexit an intergenerational conflict is divisive. There were many fault lines but simplifying such matters is at the heart of fascist manipulation.
How do you think the younger generations see it? They are all growing up as citizens of the world, and their elders that tried to cut them off from that. 1930s ideology is irrelevant.
It was only a matter of time before the usual suspects added pensioners to the ever-increasing list of the undeserving poor. The sensible way forwards is, of course, immigration, but we can’t do that because it makes the (aging and dying rapidly) racists clutch their pearls in horror at seeing a brown face. Tax income realistically and ensure the rich pay a proportionally equivalent rate given the disparity in earnings and savings; that won’t fix the problem completely but it will stop the country haemorrhaging money from bribing millionaires.
The boomers and old people had it best and love pulling the ladder up.
The truth that is always avoided.
We like to joke “what did the Romans ever do for us”. Future generations will ask “what did the boomers ever do for us” and it won’t be funny.
No, Craig Mackinlay, the country’s welfare system is struggling to cope because of increasing inequality and the failure to tax the wealthy adequately. And yes, naysayers, they can be taxed adequately.
spot on, succinctly put.
He should start with the gold plated inflation linked defined benefit scheme that is given to some public workers. The beneficiaries only pay a small fraction of actual value and the rest of the taxpayers foot this bill. It is a benefit that is given to a quarter of employees but is paid for by three quarters remaining taxpayers. The state pension is paid by all employees with NI contributions. So why pick on it first?
Solve both by clawing back the state pension from retirees on high incomes using an arrangement similar to the high earner child benefit claw back.
No, because that treats those that actually saved for a high value pension and these that were just given it. My understanding is that the MP and AS are all on the gold plated subsidised pension exactly the same. So clearly we are not going to get rid of that so it’s the state pension that gets hit.
There are two problems here. Creating an affordable system that can keep working for younger generations, and unaffordable public sector pensions. Getting the second fixed isn’t going to happen quickly if at all. So restricting state pensions to those that need it in a way that doesn’t change behaviours is the only option to make the system affordable in the medium term. Anyone on a retirement income above £50k however it’s funded doesn’t need state support. And by clawing it back in a graduated way means no cliff edge to trigger damaging behavioural changes.
Rampant elitism among the top slice of public institutions, all copying the huge retirement benefits and other goodies dished out to the spivs leading major corporations.
Watch out for public servants given promotions before they retire. . Watch out for nothing jobs given to others such as AS etc. We are going to get Lord Gethin whose most famous deeds were erasing the telephones and getting a dodgy sponsor. And people wonder why Labour’s loosing support
Ummmm … pensions in Chile were privatized after some murderous generals made war on their own population and exiled, imprisoned, or killed the opposition.