Are you sat down? Good. Because recent figures from the Office for National Statistics have revealed that the UK’s pension liabilities amounted to a whopping £7.6 trillion at the end of 2015. Essentially, that represents the pension pot that is promised for the retirement income of Brits. Acumen explores just what this means for the country and future retirees alike.
Pension liabilities hit £7.6m
Seven and a half trillion pounds. That’s a lot of money. More than most of us can actually comprehend. However, this 13-figure (12 noughts in a trillion if you were wondering!) sum is the current pension liability faced by the UK. Around £5.3 trillion of which is the responsibility of local and central government, while the remaining £2.3 trillion is chalked up to private sector employee pension entitlements.
Interestingly, according to some expert commentators, roughly just a third of that projected pension lump sum is already ‘banked’ in company pension funds. The assumption is that the remaining balance will be topped up by the future working populous. The only aspect not covered by this forecast is the amount of funds accrued in self-invested personal pensions (SIPPs), which have risen sharply since the onset of the pension freedoms.
This arresting figure, which no doubt prompted sharp intakes of breath across the finance sector, came hot on the heels of official warnings from the Government Actuary’s Department (GAD) that national insurance will almost certainly need to increase by billions of pounds to sustain the state pension and the UK’s ageing population. Without a hike in NI contributions, the GAD has predicted that the National Insurance Fund could be exhausted by the mid-2030s.
Younger generations hit hardest by UK’s pension problems
All of which points to the strong possibility that future generations will be faced with picking up the tab for pension entitlements, either via a state pension age of 70 or higher, higher taxes or a lower state pension altogether. Some organisations are already feeling the pinch. As companies with large defined benefit liabilities are thought to be capping current wages to fund the retirements of retired staff members.
Former pensions minister, Steve Webb, he of the now infamous ‘Lamborghini’ comments at the time of the pension freedoms launch and now director of policy at Royal London, told The Independent: “There’s no doubt that large unfunded pension promises will place a growing burden on future workers, who will have to fund their own pension provision as well as helping to meet the pension promises due to older generations.”
“This makes it all the more important that younger workers in particular ‘max out’ on the money that employers are willing to put into workplace pensions – money that is often not taken up. For today’s younger workers, the state pension will be an important part of their income in retirement, especially if they do not build up a large pension of their own. Paradoxically, cutting back on state pensions today could leave younger workers with poorer private and state pensions when they retire,” he added.
If you’re worried about your pension forecast or would like some advice on how to maximise your retirement prospects, speak to one of our expert financial advisers to discuss your options. Call Acumen today on 0151 520 4353 or email us at [email protected] for further information or to arrange your free consultation meeting.