Cost of State pension to hit £146,000 per household
State pension will cost £146,000 per household
Funding the state pensions of current and future pensioners will cost the equivalent of £146,000 in cumulative tax payments for every household, new official figures have revealed.
By James Kirkup
2:32PM BST 27 Apr 2012
Taxpayers will also have to find the equivalent of £33,000 for every household to pay for “unfunded” public sector pensions, Office for National Statistics figures showed.
The ONS published the first formal assessment of the UK’s total pension liabilities, the sums owed to current pensioners and today’s workers when they eventually retire.
Overall, those liabilities are estimated at £7.1 trillion, almost five times the value of the entire UK economy. That money will have to paid out of the lifetimes of current and future pensioners.
Only £2.1 trillion of that sum will be met by private sector employers and pension funds. The remaining £5 trillion are obligations on the Government, either through the state pension or the retirement schemes of public sector workers.
By far the biggest part of that liability is state pensions and other payments made directly to people over the state retirement age.
The Government already spends more than £100 billion a year on pension-age benefits, around one seventh of all public spending.
The sum that will increase as average life expectancy rises and people live longer in retirement. To curb the costs, the state retirement age will rise to 68 and beyond.
The ONS said the total cost of funding such commitments to current and future pensioners will be £3.8 trillion.
That is 263 per cent of GDP and almost four times current national debt. It is also equal to £146,153 for every one of the 26 million households in the UK.
The state pension is “unfunded” meaning there is not a sum of money earmarked to pay for them.
Instead, they are paid from general government revenues, meaning the £3.8 trillion will be raised from taxes and other levies on workers and companies in future years.
Using the same definition, many public sector workers’ pensions are also “unfunded”, even though employees contribute to the costs of their own retirements.
The ONS said that State employees including civil servants, teachers, National Health Service employees, the Armed Forces, police officers and firefighters have “unfunded” pensions
The total cost of funding pensions for those groups will be £852 billion, the statisticians said.
“Unfunded” pension liabilities are omitted from the national accounts, meaning the future costs identified by the ONS do not count towards the national debt.
Other public sector pensions, including those for local government staff and the BBC, are classified as “funded” schemes. But they will still put £313 billion of obligations on the State in future.
The National Association of Pension Funds said the huge figures underlined the need for Britain to save more for retirement.
Mel Duffield, head of research at the NAPF, said: “Retirement comes with a big price tag and we fear the burden on our society and our economy will only get worse.
“The core problem is that our society is not saving enough for its old age and so we will have to work longer or save more, or both. Retirement ages are rising and new rules to automatically place all workers in a pension will help, but more needs to be done.”
Steve Webb, the pensions minister, said the costs described by the ONS showed why the Government had to take “urgent” action to reform public service pensions and to bring forward the increases in state pension ages.
He said: “Later this year we will publish further proposals for a more automatic link between longer lives and the state pension age. We need to make sure that the state pension system is kept on a sustainable footing and that costs are shared fairly between the generations. But we are also determined to make sure that when people do retire they get a decent pension which is why we have restored the link with earnings for the basic state pension”.