Britain's £750 Billion 'Pension Bombshell'

Published in Investing on 12 April 2012

The IMF urges the UK to raise its retirement age quickly, or risk another financial meltdown.

Good news: thanks to better diet and rapid advances in medical care, we Brits are living longer than ever before. As a rough rule of thumb, each passing decade adds another year to average life expectancy for men and women.

Bad news: rising life expectancy is placing an ever-greater burden on the National Health Service and the UK's already-strained system of state pensions. As a result, the government plans to increase the state retirement age to:

1. 66 by 2020;

2. 67 by 2036 (expected to move forward to 2028); and

3. 68 by 2046.

(You can check your state retirement age using this pension calculator.)

Too little, too late

Alas, despite these changes to state retirement, the International Monetary Fund (IMF) yesterday warned that Britain faces a "pension time-bomb" that could add between £750 billion and £800 billion to our national debt by 2050.

The IMF claims that Western governments could be under-estimating future life expectancy by up to three years. As a result, supporting our rapidly ageing population will place an ever-heavier burden on taxpayers.

Indeed, the IMF suggests that lengthening current life expectancy by three years could cause the UK's national debt to explode from 76% of our current GDP (gross domestic product, or total national output) to 135%. Furthermore, this covers only additional pension costs and not higher healthcare spending.

In addition, the IMF warns that the private sector simply cannot cope with this impact, noting: "With the private sector ill-prepared for even the expected effects of ageing, it is not unreasonable to suppose that the financial burden of the unexpected increase in longevity will ultimately fall on the public sector."

We must act fast

In 2007, there were nearly 10 million over-65s in the UK, but this figure is predicted to rise to more than 16 million by 2032. Thus, 20 years from now, perhaps one in four of the UK population will be over 65, "consuming a growing share of resources", as the IMF puts it.

Obviously, we as a nation need to act today to prevent longer lives placing an unsustainable burden on our future economy. However, politicians are unable or unwilling to 'grasp the pension nettle', for fear of alienating the over-50s -- a powerful group accounting for a large proportion of voters.

Then again, with liabilities for state and public-sector pensions already exceeding £1.1 trillion, we have no choice but to tackle this 'pension bombshell'. Otherwise, massive claims on the public purse from baby-boomers and their children will, eventually, collapse the British economy and ultimately cause us to default on our sovereign debt.

Retirement at 70

Alas, we Brits need to face up to a bitterly uncomfortable reality: we can no longer expect to retire at 60 or 65 and expect the state to pay us index-linked pensions for perhaps two decades of retirement. Only by lifting the state retirement age to 70 by, say, 2022 can we nip this problem in the bud. Other options include raising pension contributions and paying out smaller pensions.

By doing nothing, we risk unfairly enriching older workers with pensions and other financial entitlements that our children and grandchildren could only dream of. As IMF assistant director Laura Kodres puts it: "The longer you ignore [higher longevity], the more difficult it becomes to resolve. The time to act is now."

What are your views on pensions? How can we tackle this time-bomb? Please tell us in the comments box below...

> Get the latest on investing and the markets, direct from the desk of David Kuo. You'll also receive a special free report on '10 Steps To Making A Million' if you join The Motley Fool Collective today.

More from Cliff D'Arcy:

Share & subscribe


The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

dubre 12 Apr 2012 , 2:52pm

It is a wonderful idea to increase retirement age.One of the consequences, however,is that our streets become flooded with unemployed young people.The devil finds much more work for idle young hands than idle old hands.

Wuffle 12 Apr 2012 , 4:03pm

A bit of flexibility could minimise the unemployed youth problem and the moaning old person problem.

Most people in their sixties have long since jettisoned the kids and mortgage so could just tick over on reduced hours.
Equally, a staggered entry to the workplace matched to education has benefits for the young and the employer.
A lot of family businesses make this transition work very well.

We might get some social cohesion back as a bonus.


apprenticeDRL 12 Apr 2012 , 5:48pm


I think you are on to something. Excellent ideal.

Unfortunately it would require joined up thinking from the Government, so it probably wont happen any time soon

Mark878 12 Apr 2012 , 7:14pm

Most people will not be able to work up to they are 70. Therefore they will retire and not collect their pension until they are 70 or collect a very reduced pension.

Can you really imagine any of the following:
1) A 70 year old teaching your kid at school?
2) A 70 year old surgeon operating on you?
3) A 70 year old midwife delivering your baby?
4) A 70 year old binman?

and so on. Yes some people can do it but most won't.

alsirat 12 Apr 2012 , 8:17pm

Forgive me for being a bit of a cynic but I do wonder just how independent the IMF is in all of this. Could it be that HM Treasury is more than happy for them to come up with this sort of analysis. And did HMT sign it off in anyway before publication. I know for example some of the OECD research has to be taken with a pinch of salt because of sign off protocols and oddly the contents of their work usually coincide with current Government policy. So would HM Treasury be more than happy for the IMF to use pessimistic assumptions to help soften up the population. Emmm let me think.

ManInTheStreet 12 Apr 2012 , 10:03pm

Hmm. Let's think about this. These retirement changes are going to come in in about 10 - 15 years time. And the next election is in three years.

There's the problem.

We need to decouple pensions from politics -- now that's a bit of a stupid comment. The only way this *may* be achievable is for all-party support. We nearly had this just before the last election but then I seem to remember the Tories saw a political opportunity and criticised Labour's 'death tax' -- everyone pays £20k on their estate.


It's all bad news; living longer and paying more. So politicians need -- *must* -- work together to manage the bad news. They must get the buy-in of the electorate (and indeed those who don't vote).

richjfool 13 Apr 2012 , 5:48am

Why not REDUCE the pension age, that would put pressure on people to save more into their pensions, thus enabling the Government to get their hands on the tax from the dividends.

And people could retire and take their pensions earlier thus enabling the Government to get their hands on the income tax on their pensions even earlier, and to get a bigger slice of the cake through the removal of "age allowances".

It's called lateral thinking.

byrnedj 13 Apr 2012 , 12:49pm

Until there is a level playing field on occuptaional pensions this wont be sorted. How can 1 person doing exactly the same job be on a sixtieths scheme whilst someone next to them, by virtue of birth date, be on an occuptaional scheme paying in 5% per annum and also get taxed on the investment income resulting from this?

We need to have a frank discussion on how we accomodate the growing old age population otherwise we will bankrupt this country. I would be willing to take a hit if it meant my young daughter got a foot up, the question is would others be willing to do the same??

Unfortuanetly on that note I already know the answer....

4spiel 13 Apr 2012 , 1:03pm

I think the IMF -this article and all above comments ENTIRELY missd the point and the issue needs to be adressed. People who have paid in for their pensions and get a Contribution based State Pension are already being asked to wait longer for their pensions !!!! If you are 60 years living on benefit you can claim an often higher rate paid Pension Credit and collect also free dental treatment and no Council Tax. WHO IS KIDDING WHO !!!!!

worlduser 13 Apr 2012 , 1:32pm

Richjfool, it would be a good idea if we were all rich fools. What if you can’t afford to put away the extra money?

It’s called being poor.

Investa69 13 Apr 2012 , 2:03pm

How about we all stop saving our money, start spending it on having a good time + beer + fags etc and die a bit younger. I feel like the only one who doesn't want to live to 150 being old and crippled for half of my life!
This country is already so overpopulated maybe it's time we stop worrying about a healthy lifestyle and budgeting for living forever, accept that we already live for too long and that this is causing us problems and years of suffering, and go and live it up for a few decades! :)

GrahamMiller0 13 Apr 2012 , 2:03pm

How about spending less? Perhaps if we weren't servicing a £1T debt, we might be better able to afford the important things. It's the waste that annoys me.

snoekie 13 Apr 2012 , 3:25pm

And this doesn't include the public sector mega time bomb, over £1 trillion, heading for £1.5 tr

C4A 13 Apr 2012 , 3:37pm

Another reason for EU nationals to come & work in the UK and then return to their own country to retire at 60 at the UK tax payers expense. Great idea!

Piggybank1 13 Apr 2012 , 9:23pm

Do I remember correctly a few years ago the government at that time
reduced the number of years National Insurance contributions needed to get a full State Pension down to 33 years, when previously it been 40 years for women and 44 years for men?

The net effect of this, as I see it, will be persons can be out of work for longer or who will not work continuously can still get a full pension, or those coming to this country to work need not put so much money into the 'pot' and can get a full pension.

It certainly cannot help the problems that are developing,

stevo55 14 Apr 2012 , 12:02am

At the age of 57 I am in the middle of this.
Having made all my plans I see the goal posts moving all the time. Ultra low interest rates, jittery share markets, real price increases of essentials and pension question marks.
It seems to me that we can no longer ask the working generation to dig deeper to fund the present retired - how will that work when 25% of the population are retired. We also can't ask people to postpone retirement until they are 70 - for reasons outlined on previous posts.
Pension funding needs to come from somewhere and the obvious solution is some form of death duty levy where state pension payments are "claimed back" by the state on death. There are many obvious issues around this but the basic premise is sound.
Something needs to be done and we have been talking about this for too long.

supasap 14 Apr 2012 , 4:25pm

at least the current and previous governments have put responsibility over revenue in terms of reducing smoking....... the 2007 legislation and current legislation will reduce consumption and revenue and increase longevity in the medium to long term... let's hope it continues this way and other solutions to longevity are introduced

DiggerUK 16 Apr 2012 , 9:33am

I'm trying to imagine the scene in a decades time.......two 70 year olds clocking in at work.......
1st 70 year old. "What have the capitalists ever done for us"
2nd 70 year old. "Kept us gainfully exploited"
1st 70 year old. "Wonderful people the capitalists, wonderful people"

Penelope55 04 May 2012 , 11:11am

Never has there been a more urgent need for the politicians to devise a simple, cheaper to administer, streamlined pension system than now. What are we getting in 2015? A hopelessly complicated and expensive mess. The sheer staff numbers required to run it, together with the present mess - which is being retained for present retirees also - would probably make it the most expensive pension system in the world. Every pound spent on the increased overheads of running the system is a pound less that is available to the pensioners.

Join the conversation

Please take note - some tags have changed.

Line breaks are converted automatically.

You may use the following tags in your post: [b]bolded text[/b], [i]italicised text[/i]. All other tags will be removed from your post.

If you want to add a link, please ensure you type it as as opposed to

Hello stranger

To add your own comment, please login.

Not yet registered? Register now.