Recent figures have suggested that the government will be forced to cut back on healthcare spending, raise taxes or increase borrowing to care for the UK’s ageing population, even if the retirement age was immediately raised to 75. An economic study has found that population growth slowing and the increase in cost for healthcare are likely to put considerable pressure on public finances, and that adding another decade onto the working lives of people in the UK would not do enough to plug this black hole.
With the retirement age at 66 by 2020, the Government’s budget deficit is projected to be just over 7.5% of GDP. However, if the state pension age were to be increased to 75 at the same point, this would still mean a deficit of more than 5.5% of GDP, equating to £110 billion in today’s terms. Economists have warned that delaying pension payments and increased income tax revenues, thanks to the increase in the older generation continuing to work part time, are unlikely to offset the demographic pressures.
Whilst linking state pension age to life expectancy with an increase by 2020 to 66 for both men and women, and again to 67 by 2028, has boosted the UK labour force annually by 0.25%, this is countered by both the birth rate slowing and life expectancy rising more quickly than predicted. It’s therefore likely that there won’t be a large enough tax base of workers to support the pensions and healthcare of the retired population.
Whilst Theresa May’s election manifesto proposal to use the value of a person’s home to determine how much they paid towards their social care – which came to be known as the “dementia tax” – was unpopular with many, it attempted to move towards a conversation with the public regarding the economic ramifications of the ageing population.
Following the election result, in which the prime minister’s gamble on gaining a greater parliamentary majority backfired, the Queen’s Speech suggested that any such plans had been either postponed or scrapped altogether. However, with health spending expected to rise from 6.9% in 2020-21 to 12.6% in 2066-67, an answer to how this deficit is going to be filled needs to be found sooner rather than later.
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