The Office for Budget Responsibility (OBR) said in a new report that rising life expectancy and the triple lock could push the cost of state pension up.
The state pension age could go up to 80 (Image: Getty)
Experts have warned that workers could be forced to wait until they’re 80 to access their state pension or pay 50% more in National Insurance contributions.
The state pension age, currently 66, is set to rise to 68 by 2048. The Office for Budget Responsibility (OBR) said in a new report that rising life expectancy and the triple lock could push the cost of state pension from £138 billion a year to £200 billion by 2073. But Jack Carmichael, of consultants Barnett Waddingham, said that the OBR underestimates the risk of rising life expectancy and estimates that the increase could be billions more, which would require increases to state pension age or National Insurance contributions. He told the Telegraph: “A more cautious approach would be to assume a closing of the life expectancy gap between the individuals with the lowest and highest life expectancy. Under this alternative, the annual cost of the state pension would increase by around £8bn a year – four times higher than the OBR’s central projection
Rising life expectancy and the triple lock could push up the cost of state pensions (Image: Getty)
“Keeping the cost at a similar proportion of GDP would then require a massive increase in the state pension age, potentially up to the dizzying heights of 80.
“Even if the central projection is correct and state pension spending hits 7.7% of GDP, the cost is still going to increase by almost half in today’s terms. That’s completely unaffordable.
“Employees are either going to have to contribute 50% more to the state pension or [the Government is] going to have to change the system in some way.”
The International Longevity Centre, a think tank, has said the state pension age will need to rise to 70 by 2040 in order to maintain the current ratio of workers to pensioners.
Analysts at The Adam Smith Institute have warned that the state pension system was likely to become unsustainable between 2035 and 2045. But its director of public affairs, Maxwell Marlow, said it could happen sooner.
He said: “Our model shows this is on course to happen in 2037. That means that the account pays out more than it gets in.
“It does depend on a lot of variables, but given current horizons in terms of growth, people out of work and the general tax situation, I don’t see that changing. It’s very concerning for the state pension.
“In terms of solving this, there are three different routes. Either a fundamental reform of how it functions, means-testing or whacking up the retirement age.”
