Official: in 17 years there’ll be nothing left in the pot
PUBLISHED: 10:50 25 January 2018 | UPDATED: 08:42 27 January 2018
Hot on the heels of last week’s column on the need for millennials to start saving on a regular basis came news that the UK’s pension pot, currently worth around £25 billion, is projected to run dry by 2035.
According to the government’s Actuary Department, the state pension fund, which receives national insurance contributions and uses them to pay retirees, is “under strain” as our population gettings progressively older.
The department has suggested that if state pensions continue being paid, NIC would need to be “around 5 per cent higher” just to ensure the fund breaks even.
I’m not sure what good squeezing people for another 5% in income tax would do, especially as: a) the number of working people paying taxes continues to fall and b) people wishing to benefit from those taxes in the form of a state pension will increase at a rate of 230,000 a year until 2046.
Regular readers will recall that last October I wrote that, “if you’re under 45, there’s almost no chance of you receiving a state pension when you ‘retire’.”
That statement has proved prescient, as has my assertion that people “can forget about tottering along to the Post Office every Thursday with dozens of other grey-haired folks before becoming the beneficiary of taxpayers’ largesse for another week. It’s not going to happen.”
I was particularly concerned about the millennial cohort and wrote, “If you’re aged 25-35, the news is even bleaker. In fact, it’s so bad, the sensible thing would be to discount receiving any state pension at all. Make your own provision as soon as possible (see my earlier columns online for details) and you’ll thank me for it in four or five decades.”
In 17 years’ time, when the nation’s pension pot runs dry, these people will be middle-aged (42-52) and still face another 25-35 years in work. It’s now official that their prospects of receiving a state pension are zero.
A Treasury spokesman was a tad more circumspect: “In the long run life expectancy and demographic trends will continue to pose a challenge for the public finances,” he said.
He’s absolutely right, though I’m reminded of the line uttered by economist John Maynard Keynes when asked to consider a longer-term view: “In the long run, we’re all dead,” albeit scant consolation to anyone under 45.
Readers of my column three months ago already knew this after I revealed the most important financial fact of life.
“Do not,” I wrote, “expect ‘National Insurance Contributions’ to gallop to the rescue. NIC is an income tax. The money each of us pays in NIC does not go into some specially-created investment fund from which pensions are distributed. It’s a tax and the sooner the government admits this, the better, although don’t hold your breath because it would mean admitting that basic rate income tax is actually 32%, not 20%.”
Can you imagine any Chancellor confirming that actually, national insurance contributions have, since the moment they were introduced, been nothing more than an additional income tax? It would be career suicide and attract mountains of opprobrium from opponents too afraid to admit that said Chancellor was correct.
Sadly, our political system is not designed to act for the common good, but to apply a particular form of political thought upon the electorate, often irrespective of whether it’s in our best interests.
In other words, there’s no prospect of a career politician admitting that action significantly more radical than hitting taxpayers for another 5% income tax – sorry, NICs – is required.
Last week, as I did in October, I suggested there is a way in which the UK’s burgeoning ‘pension crisis’ can be solved and I make no apology for re-iterating this.
“It’s down to individuals, not the government, to rectify it, primarily by saving more,” I said. “However you’re getting on with your other new year resolutions, you will be doing yourself a massive favour if you either start putting modest sums of money aside, into an ISA perhaps, or increase the amount you’re already saving. You may have to sacrifice something in return, but the sooner you take the plunge, the fitter your finances will become.”
Considering the pension pot will run dry by 2035, this remains the most important financial fact of life of all.
The Week in Numbers
Researchers at Queen Mary University in London discovered that 69% of people who have ever tried a cigarette went on to become daily smokers, even if they eventually gave up the dreaded weed. The research also found that fewer than 20% of 11-15-year-olds admit to having taken a drag of a cigarette, a significant fall on 20 years ago when more than half of this age group had inhaled a cigarette.
Great Britain’s medal target at the Winter Olympics starting in Pyeongchang, South Korea, February 9. Britain enjoyed her best winter medal haul (4) for years in Sochi in 2014 after three of the previous four Winter games saw just one medal each.
Weight lost in five months by Job Stauffer, an American writer, after playing a virtual reality game called Soundboxing on HTC Vive in which players punch objects flying towards them in time to music. It’s predicted that VR will replace the gym – though it didn’t do much for Wii users a few years back who could play tennis on the settee eating a bar of chocolate…
Scientists have found that people who spend up to 90 minutes extra in bed are less likely to eat sugary treats. On average, subjects involved in a study showing the effects of increased sleep reduced their sugar intake by 10 grams a day. Great news for anyone wanting to go on a diet.
Annual increase in the number of break-ins to cars (to 239,920) during 2016. Police said that motorists who leave their mobile phones on show after using them as sat navs are contributing to a sharp rise in thefts from vehicles.
Peter Sharkey read economics at the University of Bristol. He worked as an accountant on three continents and has been a company director and investor for more than 30 years, building and selling three different companies.