We also had an abortive attempt to increase national insurance, albeit only for the self-employed, in Philip Hammond’s 2017 Budget so this could be a viable future strategy.
An alternative approach would be to merge national insurance and income tax. This has been raised several times, but so far been left in the ‘too difficult’ box. It would be very complicated to implement, although the result could be a simpler system for taxpayers in the end.
Preferable to both of these solutions would be that people are motivated to increase the level of their private savings. Automatic enrolment is a step towards this; but minimum contribution levels are nowhere near the levels required to replace the state pension. It should also be remembered that the UK already relies on a much higher level of private savings than most other OECD countries.
Trust in hope
The cost of the state pension is highly sensitive to demographics, so it is possible that increases in longevity will slow, but we may also see an increase in birth rates.
Another possibility is that the number of UK workers is boosted by increased migration. This is unlikely to come from the EU following Brexit, but from other countries where people find the prospect of living in Britain more attractive than under their current regimes. Also, the economy may recover to the point that earnings increase and unemployment falls even further.
The government has limited or no control over these factors, and can only monitor them and use them to calculate whether the state pension is sustainable. At the moment it would seem it is not. Whatever happens, relying on the state pension for your financial future may not be the best strategy. Those who are able to should certainly consider increasing private pension contributions in order to augment anything they might receive from the state.
Fiona Tait is technical director of Intelligent Pensions
