The state pension triple lock’s “future viability” is in question as funding for the benefit could run out in 20 years time.
Funding for state pension payments comes from National Insurance but this method of generating funds will be “difficult for the Treasury to sustain”, according to experts.
With the triple lock, older Britons are promised to see their payments rise by either the rate of inflation, average earnings or by 2.5 per cent; whichever is highest.
Earlier today, the Government’s Actuary Department (GAD) provided an update on The National Insurance Fund ahead of the benefit payment rate hike in April.
The 'future viability' of the state pension is in question
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The department reports a balance from March 31, 2023, of £72.5billion which is £4.8billion higher than what was estimated in last year’s report.
According to GAD, the increase to the state pension’s payment rate is forecast to raise total benefit expenditure by £10.8billion.
Payments from the National Insurance Fund are expected to exceed receipts by £3.2billion in the 2024-25 tax year.
However, after this point, the balance of the National Insurance Fund is estimated to decrease as benefit expenditure is projected to exceed contribution income in every year up to 2028-29.
Furthermore, if there is a projected increase in the number of people who will become state pension claimants relative to the working-age population, this would raise Fund expenditure relative to income.
If there is no additional funding, the National Insurance Fund could be exhausted in the next 20 years, GAD reports.
Damon Hopkins, Head of DC and Workplace Savings at Broadstone Warned that today’s report shows the “growing burden” of the state pension on the public purse.
He explained: “With an ageing population, the UK faces a significant challenge of a proportionately shrinking working age population financing more pensioners.
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Chancellor Jeremy Hunt confirmed the triple lock rise will remain in place this year
PA“Combining this challenge with a triple lock which has generated significant uplifts in recent years, means the Government should be concerned about the future viability of the National Insurance Fund.”
According to the savings expert, working-age Britons should prepare accordingly for retirement due to the future of the state pension, in its current iteration, being up in the air.
Mr Hopkins added: “While it would be a significant political risk to endanger the triple lock now, its current format could be increasingly challenging for the Treasury to sustain.
“For workers, it emphasises the ever-increasing necessity of building up adequate personal pension savings to ensure a decent standard of living in later life.”
The state pension, as well as other benefit payments, will be uprated in April 2023.