Who pays the £200bn bill to protect our state pension?


First they suspended the triple lock

The triple lock has been in place for over 10 years, here is now it has done so far.

The Government afforded these increases out of revenues and have made successive promises to continue to fund pension increases at the higher of inflation,earnings of 2.5%.

But in April 2022, the state pension will not increase in line with earnings but by CPI. It is due to rise by 3.1%, in line with the rise in the Consumer Prices Index (CPI) in the year to September 2021.  But this month’s figure for CPI is an increase of 5.1%, with further rises expected between now and next April.  This will lead to a significant squeeze in the living standards of more than twelve million pensioners. As LCP point out.


  • Those wholly dependent on state pensions and benefits will see their incomes rise by 3.1% but the prices they pay have risen by at least 5.1%, and probably more by next April; this means a real cut in living standards of 2%, even for the poorest pensioners


  • Those who also receive company pensions or private pensions may face a bigger squeeze; not all company pension payments are fully protected against inflation, and anyone who bought a ‘level’ annuity gets no annual increase at all;


  • Inflation will erode the spending power of savings which pensioners hold in ISAs or other investments; money held in cash ISAs will often generate interest close to zero; with inflation at 5.1% and rising, the real value of those savings will fall by at least 5%;

Not only will state pension payments fall in real terms, but income from private pensions will be squeezed, and inflation will eat away at the value of savings held by pensioners in cash ISAs and bank accounts.  The Government has shown that it can change Universal Credit rates at short notice when it wants to, and it will now come under pressure to re-think the modest state pension increase it had planned for April 2022”

Now they’re after putting back our state pension age.

Who can protect us from the Treasury?

He may no more be Pension Minister, but Steve Webb is fighting  a rear-guard action against proposals from the Treasury  the DWP, to push back the state pension age to 68 for those born after April 1970. The DWP’s even appointed a former Treasury Minister and Conservative  Peer, Baroness Neville-Rolfe, to conduct the review.

But is such a review necessary? Indeed , need those of us born after April 1960 need to see our state pension ages pushed back from 65 towards 67?

Steve Webb and LCP think they can.

The Government’s plan to push back the state pension age is based on calculations that ensure no-one spends more than one third of their adult life in retirement.

However, since those plans were drawn up, official estimates of longevity have been scaled back, even before the effect of the Covid pandemic.

This  would benefit 20 million people born in the 1960s, 1970s or early 1980s, at a cost to the Treasury of an estimated £200bn.

 “The government’s plans for rapid increases in state pension age have been blown out of the water by this new analysis.

“Even before the pandemic hit, the improvements in life expectancy which we had seen over the last century had almost ground to a halt, but the schedule for state pension age increases has not caught up with this new world.”

He said the government’s plans should be revisited as a matter of urgency- there is “no case” for another state pension age increase so soon.” – Steve Webb.

Is LCP relying too much on longevity and ignoring fertility?

£200bn is a lot of public money and would represent a substantial transfer from those working over the next twenty years to those retiring.

Many would argue that the limits of the existing support have already been reached. One of the Treasury’s main worries is that as the proportion reaching retirement age grows, the number of working age people will shrink as birth rates decline.

The number of working age people to every pensioner, or the “old age support ratio”, is forecast to fall to 2.9 by 2050, from 3.3 in the mid-1970s to 2006.

This is a concern because UK state pension payments are funded through taxation and national insurance contributions from those of working age.

Tax revenue from those in work may fail to keep up with demand for social security — and governments will have to make tough choices.

LCP are yet to publish their numbers. The question is whether their actuarial assumptions are registering the recent platuauing of life expectancy as a blip or as the start of a longer term trend.

David Robbins comments on twitter that the differences in position are based on technical targets.

Webb and LCP argue that the Treasury target is based on outdated information which has been superceded by later projections based on more recent data from the Office of  National Statistics

If this is the case, then we need to be considering that argument in its historic context.

The chart above shows that life expectancy has been subject to many year on year declines  and that some periods of war and pestilence have created longer term blips. But viewed over a 180 year framework, it is clear that the general trend is as Government would have it.

The question is fundamental, “can we afford to keep our pension promises to ourselves?” We have heard that question many times and in many contexts. It remains unanswered because it depends on how we prioritise pensions against the conflicting demands of wealth preservation.

Today’s argument is about wealth and income distribution

There is another way for us to fund the triple lock and not push back state pension ages (so fast). This is by funding the state pension , to a greater degree, from wealth taxes. Successive Conservative Governments have been wedded to John Major’s stated principle of “weath cascading down the generations”.

But this principal assumes that the wealthy stay wealthy and that the poor are always with us. It’s the kind of vision that kept feudal society going for centuries and relies on relatively little social mobility.

But the low-tax world of capital gains and inheritance taxes doesn’t benefit most people who haven’t the wealth to worry about preserving. For them , pensions are all important and the state pension most important of all.

The £200bn windfall that the Treasury would receive if the Cridland review was reversed and the Neville-Rolfe review found in favour of LCP’s numbers, would need to be found from somewhere.

OK Boomer?

In its preamble to the latest review of the state pension age, the DWP states

“The government needs to make sure that decisions on how to manage its costs are, robust, fair and transparent for taxpayers now and in the future. It must also ensure that as the population becomes older, the state pension continues to provide the foundation for retirement planning and financial security,”

In my opinion, there is more scope for wealth distribution to improved incomes for the non-wealthy, than to plunder working people in their twenties, thirties and fourties.

It is not in the Conservative party’s unwritten handbook, to tax wealth, but it is the obvious alternative to reducing pensions.

That may not be ok for baby boomers, but it feels the right way for society to sort the gap between those whose wealth makes pensions irrelevent and those who rely on pensions as the way to pay their bills.

But before we decide what parts of the State Pension to cut and what must be supported we should listen to someone who has done more thinking than most on its sustainability.

How we pay for the State Pension is a debate to be had alongside the debate on the state pension age and the sustainability of the triple lock.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in pensions and tagged , , , . Bookmark the permalink.

1 Response to Who pays the £200bn bill to protect our state pension?

  1. John Mather says:

    Increased Productivity? Not considered as a possibility

    If you damage the GDP of the U.K. by abandoning your closest market and make no provision for your service sector then you face cuts in services and benefits.

    This must be the dumbest government ever

    Boris should beware the IDS by March

Leave a Reply