Workers under 50 face pensions tax rise
Workers under the age of 50 face a tax rise because the state pension fund will run out in 2035, government advisers have warned. According to the Government’s Actuary Department, the fund is under strain from the UK’S ageing population and will reduce from around £25billion today to zero by the mid-2030s. To continue paying the state pension, which makes up around 90 per cent of its outgoings, national insurance rates would have to be “around 5 per cent higher”.
WORKERS under the age of 50 face a tax increase because the state pension fund will run out in 2035, Government advisers have warned.
The Government’s Actuary Department revealed that the fund, which takes in national insurance contributions and uses them to pay state benefits, is under strain from the UK’S ageing population and will reduce from around £25billion today to zero by the mid-2030s.
To continue paying the state pension, which makes up around 90 per cent of its outgoings, national insurance rates would have to be “around 5 per cent higher” for the fund to break even, it said.
A portion of national insurance contributions paid is held back for the fund’s reserves, while the majority is used to pay pensions and benefits in the current year.
National insurance is paid into the fund by workers and their employers and secures their entitlement to future state pension payments.
A 5 per cent increase in contributions for workers would cost an employee earning around £28,000 a year an extra £125 annually, while someone earning £40,000 a year would pay an extra £190 for the same state pension entitlement.
A blanket national insurance rise would likely affect workers who reach state pension age after 2035, at which point they are likely to retire. This is anyone born in, or after, 1968 who have a state pension age of 67 or higher.
The potential blow to workers comes shortly after six million people in their forties were told their state pension age would be raised from 67 to 68.
Pensioners who have left the workforce do not pay national insurance, although future policymakers could force wealthier retirees to start paying to make up the shortfall.
Experts said future governments faced “tough decisions” on raising taxes to pay for Britain’s ever-growing state pension bill.
The Government’s Actuary said: “Substantial increases in National Insurance contribution rates would be particularly politically sensitive and would again require primary legislation.” Steven Cameron, pensions director at Aegon UK, said: “While governments may be tempted to focus on the issues they face in the short term, for state pensions they need to think much further ahead.”
Tom Selby, senior analyst at AJ Bell, added: “The harsh reality is that, as demographics bite and the Baby Boomers flood towards retirement, the cost of the state pension will inevitably balloon.”
A Treasury spokesman said: “We expect the fund to have a surplus for the foreseeable future. In the long run, life expectancy and demographic trends will continue to pose a challenge for the public finances.”