Ageing population requires deferring of pension age of 1.5m pensioners by 2033.
Aon Corporation (NYSE:AOC) has said the UK is faced with a pensions headache unless the retirement age is deferred by at least two years.
The ONS has estimated that the UK population will rise from 61m to 71.6m by 2033 if current growth trends continue.
Based on their assumptions, Aon has calculated the impact on the ability of the state to provide a basic state pension.
The projected rise in the UK’s population will exacerbate the nation’s long-term pensions crisis, with the likely outcome being substantial tax rises just to sustain current basic pension levels, according to Aon Consulting - the division of Aon Coproration dedicated to employee risk and benefit management.
Marcus Hurd, head of corporate solutions at Aon Consulting, said:
“State pensions are like pyramid insurance: you need to keep feeding the bottom to fund those retiring at the top. Increases in population ease the burden only if there are more people paying tax to fund those currently retiring, but the problem is only being stored up for the future. Under the state pension system, current tax payers are not really contributing to their retirement income at all, they are merely paying for their parents and grandparents.
“According to the ONS figures, the number of pensioners will rise by 32% to 15.6m by 2033, which implies that the amount paid in pensions will also have to rise by 32% to keep the level of existing pensions the same.
“There is some mercy because the ratio of taxpayers to pensioners falls from 3.2 taxpayers for every pensioner to 2.8, hence the net increase in the burden per taxpayer is 14%. In order to restore the ratio back to the current level, then the country would need to defer the retirement of some 1.5m pensioners by 2033, which would require adding at least 2 years to the state pension age.
“In other words, the total state pension bill would have to rise by 32% and the total bill for each individual would have to rise by 14% to maintain the same level of benefits. Another equally unpalatable option is to reduce the UK state pension, already the worst in Europe**, by 14%.”