UK Pension Payout Will You get Any?
How the UK pension payout system is supposed to work,… whether you’re working a part-time job or a full-time job you pay NI (national insurance) which entitles you to claim a state pension when you retire. However for a few years, I’ve grown more than a little bit concerned!
What happens in 20 years when it’s time for my payout?
Will there be enough cash in the kitty?
And it seems it’s not just me he’s worrying about the state of the economy. Working and relying on the money from a state pension just doesn’t make sense.
What does makes sense to me is setting up my own financial security. That’s what started this blog part-time job full-time income, to highlight a few ways we can increase our chances of being financially stable in years to come.
So the question of UK Pension Payout
Will I get a UK Pension payout, or will the state go bust by then? And it seems it’s not just me he’s worrying about the state of the economy.
Financing the state pensions of the next generation of retirees is a key challenge for future governments – yet it has not been mentioned in the early election discussions.
This is despite the retired over-65 population being projected to increase by between 35% and 50% in the next 20 years. National insurance contributions from employers and employees will become insufficient to meet these costs unless contribution rates rise significantly.
The Department of Work and Pensions 2014 cost projections present an even worse picture. Even though Serps and the state second pension have been abolished, and many more people are delaying retirement, its projections show pension costs rising to £172bn in 2033/4 and then to £415bn by 2063/4 – based on 2014/15 prices.
This financial nightmare does not even include the cost of pension credit and welfare benefits.
These figures do not, though, make sense, as they infer retired population increases of 210% by 2033 and 500% by 2063, whereas the latest ONS 2012 projections show increases of 139% and 144% respectively for the UK.
By 2020, the NHS subsidy will cease to exist, with all proceeds of the fund required for state pensions.
It seems inevitable that the state pension will eventually degrade into a means-tested benefit. There have already been proposals from the Institute for Fiscal Studies to turn national insurance into a tax, with the proceeds of the new workplace pension used to replace the state provision.
A generation of workers would, in effect, be paying twice for their pensions, without receiving the enhanced benefits that a previous generation of pensioners did from Serps.
This situation arises because of the unfunded pay-as-you-go nature of the state system; contributions are not saved to accumulate and grow into a retirement fund and, moreover, are eroded by inflation. At the average wage, total national insurance contributions cost £4,655 per year.
If everyone in work carried a pension pot adequate for their needs into retirement, the problem of “age dependency” – younger adults who are in work paying for those who are retired – would disappear. Instead, it is projected that by 2050 there will be just two people in work for every pensioner, resulting in a serious dependency problem.
The analysis reveals, that because the demand for pensions is spread, because of the age range, then transition to a funded scheme could be implemented in an almost cost-neutral manner by funding liabilities through debt.
The main problem would be how to pay for existing members: the state pension liability is currently £3.8bn and represents contributions collected from members and spent on others, in effect creating a national debt. If interest were paid at 4%, the cost would be £152bn per year – almost twice the present pension cost.
So you see my dilemma…
If you have an opinion – I’d love to hear it, please add your comments below.
I found another rather eye-opening article on the thisismoney.co.uk website
This is an edited version of a blog first published on Manchester Policy Blogs