UK state pensions to cost more than education, policing and defence combined

Pension costs have risen sharply because of the mechanism by which pensions rise by whichever is higher of the annual increase in average earnings, inflation or 2.5 per cent.

UK pensions costs have risen sharply for years. Thinkstock. Pic. Supplied

Britain will spend more on pensions within two years than on education, policing and defence combined, official figures show.

Pension costs have risen sharply for years because of the government’s “triple lock”, the mechanism by which pensions rise by whichever is higher of the annual increase in average earnings, inflation or 2.5 per cent.

Last year pension costs increased by £6 billion (AUD$11.6 bn), to £10 billion. By 2025 they are expected to have ballooned to £135 billion – £2 billion more than the combined day-to-day budgets for the Department for Education, the Home Office and the Ministry of Defence, a Times analysis shows. The departments receive separate funding for capital projects, to be spent on investment or future growth.

A government source said: “That’s the cost that comes with protecting the old. They can’t get jobs, most people can – for many it’s their only income.”

However, experts said the triple lock was becoming “unsustainable” at a time of planned Whitehall budget cuts.

A poll has found that a third of people do not believe the state pension will exist in 30 years, with those who voted Leave in the EU referendum and 2019 Tory voters feeling most pessimistic about its continued existence. The Institute for Fiscal Studies think tank and Abrdn Financial Fairness Trust found that 15 per cent of people did not expect to retire until their seventies, while 13 per cent did not expect to retire at all.

The rise in pension spending is in part because of the ageing population, with the impact of the baby boom of the late 1950s and early 1960s not yet taking effect. Between April 2026 and 2028 the state pension age will rise to 67, with the plan being to raise it to 68 between 2044 and 2046. However, a future review is due.

A second government source said there was little that could be done to ease the cost in the short term and that future decisions would be a “problem for the next government”.

In the year to August 2022, the number of people receiving a state pension rose by 130,000 to 12.6 million.

Sir Steven Webb, the former Liberal Democrat pensions minister, said as well as pension costs increasing, NHS and social care spending would rise to cope with the more elderly population. He suggested ministers would eventually be forced to put up tax to cover it.

He said: “Pensioners are a protected group electorally, so the state pension gets protected. The NHS is a kind of national religion and is protected. Everything else gets squeezed.”

Webb said defence, schools and benefits had already been hit but added: “The time will come when none of those can be squeezed any more.”

The triple lock has resulted in the state pension going up by 10.1 per cent this year. The Conservatives and Labour have committed to keeping it until 2030. However, Lord Hague of Richmond, the former Tory leader and a Times columnist, and the Institute for Fiscal Studies say it is “unsustainable”. The Tory peer Baroness Altmann, also a former pensions minister, said it was not “a sensible policy”.

Altmann proposed a “double lock” based on inflation and earnings but said money could be saved by upping the number of years of national insurance contributions needed to qualify for the full pension, which is 35 at present.

The IFS has said that if rises continue as planned, the share of those over state pension age is set to increase from 24 per cent today to 27 per cent in 2050.

The Times