The IMF urges the UK to raise its retirement age quickly, or risk another financial meltdown.
Good news: thanks to better diet and rapid advances in medical care, we Brits are living longer than ever before. As a rough rule of thumb, each passing decade adds another year to average life expectancy for men and women.
Bad news: rising life expectancy is placing an ever-greater burden on the National Health Service and the UK's already-strained system of state pensions. As a result, the government plans to increase the state retirement age to:
1. 66 by 2020;
2. 67 by 2036 (expected to move forward to 2028); and
3. 68 by 2046.
(You can check your state retirement age using this pension calculator.)
Too little, too late
Alas, despite these changes to state retirement, the International Monetary Fund (IMF) yesterday warned that Britain faces a "pension time-bomb" that could add between £750 billion and £800 billion to our national debt by 2050.
The IMF claims that Western governments could be under-estimating future life expectancy by up to three years. As a result, supporting our rapidly ageing population will place an ever-heavier burden on taxpayers.
Indeed, the IMF suggests that lengthening current life expectancy by three years could cause the UK's national debt to explode from 76% of our current GDP (gross domestic product, or total national output) to 135%. Furthermore, this covers only additional pension costs and not higher healthcare spending.
In addition, the IMF warns that the private sector simply cannot cope with this impact, noting: "With the private sector ill-prepared for even the expected effects of ageing, it is not unreasonable to suppose that the financial burden of the unexpected increase in longevity will ultimately fall on the public sector."
We must act fast
In 2007, there were nearly 10 million over-65s in the UK, but this figure is predicted to rise to more than 16 million by 2032. Thus, 20 years from now, perhaps one in four of the UK population will be over 65, "consuming a growing share of resources", as the IMF puts it.
Obviously, we as a nation need to act today to prevent longer lives placing an unsustainable burden on our future economy. However, politicians are unable or unwilling to 'grasp the pension nettle', for fear of alienating the over-50s -- a powerful group accounting for a large proportion of voters.
Then again, with liabilities for state and public-sector pensions already exceeding £1.1 trillion, we have no choice but to tackle this 'pension bombshell'. Otherwise, massive claims on the public purse from baby-boomers and their children will, eventually, collapse the British economy and ultimately cause us to default on our sovereign debt.
Retirement at 70
Alas, we Brits need to face up to a bitterly uncomfortable reality: we can no longer expect to retire at 60 or 65 and expect the state to pay us index-linked pensions for perhaps two decades of retirement. Only by lifting the state retirement age to 70 by, say, 2022 can we nip this problem in the bud. Other options include raising pension contributions and paying out smaller pensions.
By doing nothing, we risk unfairly enriching older workers with pensions and other financial entitlements that our children and grandchildren could only dream of. As IMF assistant director Laura Kodres puts it: "The longer you ignore [higher longevity], the more difficult it becomes to resolve. The time to act is now."
What are your views on pensions? How can we tackle this time-bomb? Please tell us in the comments box below...
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