For many years now, the ‘pensions savings gap’ has been a statement banded about and discussed at length by successive Governments. The aforementioned ‘gap’ is the difference between what people can expect from State pensions and what they have saved for and are able to provide for themselves.
Successive Governments have increased the State pension age, amended the amounts payable and ‘tinkered’ with the number of years it takes to qualify for maximum State pension, in an attempt to reduce the growing crisis in State pension funding.
The latest Government Actuarial Departments (GAD) own projections however suggest that the National Insurance fund used to pay out the State pension, will be exhausted by 2033! The projections are based on the assumption that NIC rates and fund benefits remain as currently (how often do these get reviewed, and usually not in a way that makes people smile!).
The report shows that from 2025 to 2026, that benefit expenditure is expected to exceed NIC receipts by an ever-increasing amount, equivalent to between 1% to 1.3% of GDP.
The report said that the cause was an ageing society with increasing life expectancy, a projected increase in the average State pension benefit as individuals start to receive the new flat-rate State pension, and increases to the standard rate of Basic State pension and new State pension as a result of the government’s triple-lock policy. The report went on to say that the fund balance is expected to increase until around 2024-2025 without any treasury grants, but that without additional support, it will be exhausted by 2033!
This would seem to suggest that (assuming State pension age rises to perhaps 69 by that point – i.e. 2033), that if you are currently aged 54 or under, that without further Government intervention (and funding from ourselves), there will prospectively be nothing left in the NIC pot for you to receive a State pension at all!!
I have said for many years, that I have yet to meet anyone retiring whom has said to me ‘I wish I hadn’t put so much into my pension’ but I have at virtually every meeting, been met by the statement ‘I wish I’d started saving into my pension earlier’. Looking at the Governments own pessimistic statement above, I doubt this last statement ever had more pertinence than now!
Neil Dainton Dip PFS
Financial Planning Consultant
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