The Office of Budget Responsibility (OBR) has recently issued its annual Fiscal Sustainability Report. This report looks at how government spending and revenues may evolve over the next 50 years and how this will impact on public sector net debt.

Now based on the OBR’s track record of forecasting short term budget many may wish to take this report with a pinch of salt but it would be foolish to ignore.
2065 seems a long time off. In the unlikely event I am still alive, I will have just have received my congratulatory text on hitting a 100 years of age from King William or even King George for that matter. Based on the report though, I rather hope I am not around as it makes rather depressing reading.

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The cost of providing state pension is estimated to be 5.1% of GDP in 2019/20 increasing to 7.3% by 2064. Health spending and the cost of long term social care will also see significant rises over this time. Now at a stage when the Government is considering legislating to tie future governments to running a budget surplus in ‘normal times’ the OBR expect, under current policy, for the budget deficit to widen and advise that it is unsustainable. So how will this impact on the likes of the state pension?
The Government has legislated to review the state pension age every six years. The expectation is that the average person should receive a third of their adult life (commencing from age 20) in receipt of the sate pension. At least 10 years notice is required to be given to any changes in the state pension age and if changed, phased in over 2 years. If the OBR’s projections are correct then the state pension age of 68, which currently is to come into play between 2044 and 2046 would need to be brought forward to the mid 2030s. Come 2064 the state retirement age would be 75. Now people living longer is one thing but how much of that time is spent in good health and where individuals would be capable of working is quite another.
The outcome of this is that relying on the state pension for many in the future will be no more than a pipe dream. The need for those starting their working life now to save for retirement will be essential and legal compulsion to do so must just be round the corner.
If I think of my own daughter, who will graduate next year, and hopefully find gainful employment thereafter, I don’t envy what the future may hold. Thank goodness under the pension freedoms she has an opportunity to inherit any unused pension from her parents. If the OBR are correct in their predictions she will need it.