The state pension “triple lock” will cost each worker an extra £1,200 in tax within five years, analysis shows.
Labour has pledged to maintain the annual uplift introduced by the Tories, which means the state pension rises each year by the highest of inflation, average earnings or 2.5pc.
The cost of the state pension stood at £124bn in 2023 to 2024, according to Office for Budget Responsibility (OBR) estimates. But this cost is forecast to rise to £158bn in 2028 to 2029 – a £34bn increase – because of the triple lock. This equates to £1,176 of extra tax for each of the 28.9m working-age taxpayers in Britain, experts have said.
They are now warning that the growing tax bill is putting pressure on public finances and means taxpayers will be forced to work longer to pay for the increase.
John O’Connell, chief executive of the TaxPayers’ Alliance, urged the Labour Government to reform the triple lock.
He said: “With the triple lock essentially guaranteeing the long-term unaffordability of the pension system, taxpayers are being continuously hammered to sustain something they will likely never receive themselves.
“If the new Government wants to fix public services while reducing the burden on working people, reforming the triple lock would be an excellent place to start.”
David Denton, of wealth manager Quilter, said: “The new Labour Government is lumbered with the exact same problem as its Conservative predecessor.
“The triple lock is an unsustainable policy but continues to be passed around like a political hot potato despite it having some significant structural problems.”
Pension spending has risen from 2pc of GDP in the early 1950s to more than 7pc today.
An ageing population in increasingly poor health is expected to exacerbate the problem. A wave of retiring Baby Boomers – born between 1946 and 1964 – is expected to push up the pensions bill significantly this decade.
Millions of pensioners received a 8.5pc pay bump in April, with the full state pension rising to £221.20 a week – or £11,502 a year. The Bank of England forecasts a 4pc uplift in 2025.
The state pension could become unaffordable as early as 2035, separate analysis from the Adam Smith Institute think tank found, as the cost of paying the benefit outstrips National Insurance Contributions (NICs).
Raising the age at which people can claim the state pension – currently 66 – has been put forward as one way of attempting to make the system more sustainable.
The state pension age is expected to increase to 67 by 2028 and to 68 by the mid-2040s. But an ageing population means this would need to rise to 70 or 71 to maintain the current ratio of workers to retirees, according to a recent report by the International Longevity Centre think tank.
But Caroline Abrahams, of charity Age UK, said pushing back the state pension age would consign many more vulnerable pensioners to living “miserable lives”.
She added: “Not being able to claim your state pension until you are 67 or later is […] a pretty terrifying prospect for anyone in this age group who is out of work, with little hope of getting back in, or who has been forced to leave employment by ill-health or by having to take on caring responsibilities for a sick partner or parent.
“In many ways these people are the new precariat in our society and it’s crucial policymakers understand their plight and take action to relieve it.”
The Treasury was approached for comment.
2024-07-26T07:02:31Z dg43tfdfdgfd