- The £7.6 trillion pension bill is more than four times the size of Britain’s economy
- It is £1 trillion higher than five years earlier as people are now living longer
- There are growing fears the burden will be shifted onto working-age families
Britain has been warned it faces a pensions time bomb after figures revealed the nation’s retirement bill soared by £1 trillion in just five years.
The total cost of workplace and state pension liabilities stood at £7.6 trillion in 2015, according to the Office for National Statistics – more than four times the size of Britain’s economy and £1 trillion higher than five years earlier.
It is feared huge tax rises in coming years will be necessary to pay the bill, with the burden shifted on to working-age families.
The total cost of workplace and state pension liabilities stood at £7.6 trillion in 2015, according to the Office for National Statistics (stock image)
The £1 trillion increase is largely because people are living longer and will therefore be paid for more years after retirement than previously expected.
Even more concerning, former pensions minister Sir Steve Webb said his analysis suggests only a third of the cash needed to pay the liabilities is already sitting in pension funds.
The rest must be raised through taxes, from savers’ future contributions or by growth in pots invested in the stock market.
Sir Steve said: ‘The numbers are truly mind-boggling. Today’s population has built up £7.6trillion in pension promises but has only set aside about a third of that amount to pay for them. The rest will have to be financed by tomorrow’s workers.’
The Government is responsible for £5.3 trillion of the total, with another £2 trillion sitting in lucrative defined benefit schemes – company pensions which guarantee a set payout for life.
The £1 trillion increase is largely because people are living longer and will therefore be paid for more years after retirement than previously expected
These programmes are increasingly rare because they impose a massive financial burden on businesses. Ultra-low interest rates and the ageing population mean many have funding shortfalls, and firms can be forced to divert their profits into plugging the gaps.
It means many savers now pay into riskier defined contribution schemes where what they get when they retire depends on stock market performance. But so far only £240 billion has been saved into these pensions, suggesting many people are not contributing enough to be financially secure in old age.