Pressure mounts on Chancellor Rachel Reeves to adjust State Pension, but experts warn of long-term economic risks and the potential depletion of pension funds.
Will UK Pensions Run Out? Experts Sound Alarm Over Depleting Funds
By Arezki AMIRI
Published on 29 September 2024 13:30
Chancellor Rachel Reeves is facing growing pressure to implement changes to the State Pension system, with the Department for Work and Pensions (DWP) potentially increasing the pension by as much as £460 next year. This comes at a time when the Cost of Living crisis continues to strain household budgets.
However, Reeves is also receiving warnings that her proposal to impose higher taxes on the wealthy could lead to unintended consequences. Some experts argue that such policies could harm the UK’s economy in the long run. Concerns have been raised that the National Insurance fund, which is used to finance pensions, could run out within two decades, placing the entire system at risk.
Experts Warn of Economic Risks
Jasmine Birtles, a financial expert and founder of MoneyMagpie, voiced her concerns during an interview with Andrew Eborn of Octopus TV. Birtles pointed out that the wealthiest 1% of the UK population currently contributes 30% of the country’s taxes, warning that an increase in taxation could drive them away, creating “massive knock-on effects.” She added:
"Who counts as ordinary working people? I work and earn, but don’t want to be saddled with a huge tax bill—what am I working for if the Government takes half my money?"
Birtles also expressed doubt over the sustainability of the State Pension system, noting that it currently costs the UK £120 billion annually, with an 8% increase last year alone.
Sustainability of the Triple Lock in Question
The triple lock, a policy that guarantees annual pension increases based on inflation, wages, or 2.5%, has been a cornerstone of pension policy. Yet, some experts are questioning its viability in the long term. Damon Hopkins, head of DC and workplace savings at Broadstone, cautioned:
"While it would be a significant political risk to endanger the triple lock now, its current format could be increasingly challenging for the Treasury to sustain."
Future of State Pensions Uncertain
As concerns mount about the financial sustainability of the State Pension, some industry voices are suggesting more drastic changes.
Joshua Gerstler, a chartered financial planner at The Orchard Practice, predicted that the State Pension could evolve into a means-tested benefit in the future. He advised individuals to plan for their own retirement, stating:
"It is more important than ever to be making your own provision for retirement, as you cannot rely on the State Pension being around forever." Joshua Gerstler.