A report published this week signalled a grave financial future for young Britons.
It claimed that the pot of money the Government uses to fund state pensions will run out 20 years earlier than expected. As a result, the report’s author, Michael Johnson of the Centre for Policy Studies, a think tank, is urging those in their 20s and 30s to plan for a retirement without an income from the state.
The findings cement a hunch that experts in the field have had for years: that the state pension’s funding position is in serious trouble. The National Insurance (NI) fund has long been shrinking, because an ageing population means fewer people paying in through NI contributions, and more people withdrawing money through state pension payments. But alarmingly, the report says the NI fund will bleed dry next year, much faster than anyone had previously admitted.
The disclosure throws up a host of questions, to which I’m genuinely frightened to know the answers. What state provision, if any, can younger generations realistically expect in retirement? If NI is scrapped, does the Government have a solid plan B in mind? And if we’ve been lulled into a false sense of security by politicians, could the other pension promises they’ve made prove just as flimsy?
It is extremely unlikely that the state pension will be scrapped altogether, and Mr Johnson is confident that older workers’ pensions will be safe. He outlines two possible courses of action for when the NI pot has reached a critical level. Either the state pension is drastically watered down for the young, or people in Britain will face higher taxes, the brunt of which will hit “Generation Y” (those currently aged 18‑33).
Both of these roads are unreasonable, Mr Johnson argues. Younger generations already face unaffordable housing, university debts, fragmented careers and earnings stagnation, and far thinner occupational pensions than their baby boomer parents.
Why is that? Hm? Hmmm?
Clearly, the future financial security of young adults is under threat. But the country can afford no more debt, and we must cut our coat according to our cloth. If taxes must be raised, or benefits cut, then my generation will have to take the blow. Given this, the very least that policymakers responsible for messing up the maths could do is emerge from under their rock and present to us a truthful projection of where our pensions are heading.
Because at the heart of what’s gone wrong here are some seriously flawed equations, which have until recently been buried in dense documents, presumably so sleep-inducing that no one could be bothered to read them.
The size of Britain’s NI fund has been calculated using long-term economic assumptions including real earnings growth of 2.4pc a year above inflation on the consumer prices index (CPI) measure.
But average earnings have actually fallen by 11pc below the CPI since just before the financial crisis in 2008. This means the projections for the fund’s size are way off the mark and severely lack credibility.
Despite all this, politicians continue to pay out higher state pension payments to older generations through the “triple lock”, which promises an annual income increase in line with wages, prices or 2.5pc (whichever is highest). The Liberal Democrats have proposed new laws guaranteeing that the annual state pension will be at least £790 higher by the end of the next parliament, for example.
But if the state pension is really on the brink, as Mr Johnson suggests, one has to question quite how any government could afford to keep such promises, without further jeopardising younger generations’ state pensions.
They don’t care about you. Us. They never did. They’ll be dead by then.
We can’t accurately predict the state of the British economy in 40 or 50 years’ time. But we do know that young people’s state pensions are extremely unlikely to be as generous as today’s. So why are we planning our private pensions around the false hope of a generous, flat-rate state retirement income that’s probably on the verge of extinction?
My generation has been dealt a poor hand financially. But it does have a trump card: youth. To stand a chance of retiring in comfort, my generation must be given the facts we need to plan ahead and be financially self-reliant in old age. The time to take personal responsibility is now, before it’s too late.
Since when did our generation care for personal responsibility?