The unspoken truth about pensions
Neither party is willing to face up to the fact that when it comes to state and public sector pensions, there really is no money left, says James Price
General elections really ought to be a platform from which the seismic, structural challenges facing our country are debated. Governments need fresh mandates if they are to grapple with such problems. Too often, though, a desire to win means that these epochal challenges, to which there are no easy or quick get deliberately ignored.
To add to our demographic challenges, geopolitical terror, civil service inertia, and chronic low growth and productivity, the other ‘too big to countenance’ issue of our time is the slow-moving car crash of the UK’s state and public sector pensions. Monday’s announcement of the ‘triple lock plus’ promised that, like the state pension, pensioners’ tax-free allowance will automatically increase in line with the highest of earnings, wages, or 2.5 per cent, will only make things worse.
Allow me to set the scene for you. The current UK public sector net debt for next year is predicted to be £2.8 trillion, more than our entire GDP. This is money owed to the various funds, banks, and institutions (not to mention foreign governments) from whom our Government borrows. And last year we paid about £112bn just to service that debt – almost as much as we spend on education.
This terrifying figure is only a small part of the ‘real national debt’, which includes the unfunded liabilities entailed in public sector pensions and the state pension. Combined, the Taxpayers’ Alliance have calculated that ‘real national debt’ stands at over £12 trillion for the UK, more than the combined economic output of Africa, Central America, Australia, New Zealand, and Canada.
But that’s not even the worst of it. Recent analysis by the Adam Smith Institute (ASI) warns that the state pension could become insolvent as early as 2035, if both major parties continue with the infamous ‘triple lock’.
A catastrophic mix of the spiralling costs of pensions, an ageing population and taxes already being at record highs mean that every option left available to Hunt or Reeves is going to be deeply unpleasant.
The ASI has also calculated that we expect to see 22.5m people claiming the state pension by 2040, but only 16.8m 16-65 year olds eligible to work to fund it. This does not include those who are out of, or too ill to go to work. This kind of demographic deficit will have catastrophic effects on the covenant between the generations, as well as to the Exchequer’s ability to operate solvently.
This is a far more acute catastrophe than anyone wants to believe – no wonder no politician wants to talk about it during an election campaign.
There is no easy way out of this. Too many people have based their future plans on the existence of the state pension, and it is too late for many millions to plan for its removal. Just look at the unjustified stink caused by the Waspi women, who were told over and over about the changes affecting them. But politicians will regret courting the ‘grey vote’ with bungs for pensioners when they find there’s no money left to pay for them.
James Price is director of government affairs at the Adam Smith Institute