Budget 2012: Pension age may rise to 80 in future, warns expert
A CHILD born today may have to work until they are 80, a leading insurer has warned, after Treasury documents showed Whitehall is struggling to keep pace with rocketing welfare costs.
The warning came after the Treasury revealed departmental spending would face an even greater squeeze on spending in 2015 and beyond than is currently the case if welfare costs are not reined in.
Chancellor George Osborne gave a clear hint yesterday that he intends to eat further into the mammoth welfare bill to limit the damage on other parts of government, saying it would have to be cut by £10 billion in 2016 alone in order to protect departmental spending.
It follows warnings last year from the Office for Budget Responsibility (OBR) that the UK is facing “unsustainable” debts over the coming 50 years as it tries to cope with the ballooning costs of an increasingly elderly population.
John Lawson, head of pension policy at Standard Life, said a child born this year may have to work through their seventies “if life expectancy at retirement rises in line with the last 30 years”.
He added: “We should brace ourselves for having to work much longer in the future. Unless we save a lot harder and are able to retire on our private pensions when we want to, many of us will still be working well into our seventies.”
The Treasury documents show that if spending on welfare, pensions and social care is left unchanged, core government budgets – including the Scottish Government’s grant – will be hacked back by 3.8 per cent from 2015-17, well up from the average 2.3 per cent they are dealing with at present.
The document warns bluntly: “The government will be examining the cost drivers for all areas of public spending, and identifying the further reforms needed to deliver a sustainable welfare system and public services within the resources available.”
That paves the way for a fresh hit on popular benefits. Experts said that, with many savings having already been squeezed out of the system, popular universal benefits for pensioners and the disabled could go next, with politically explosive results.
Other reforms look likely to include a further uprating in the retirement age, with Mr Osborne confirming yesterday he would introduce an “automatic” review of the state pension age, with a report on how it will operate to be published this summer.
The gloomy long-term prognosis came as the OBR offered Mr Osborne some short-term relief yesterday, suggesting he was on course to meet his target to reduce the country’s national debt mountain by 2015-16, and to balance the government budget over the next five years.
On the wider economy, the OBR said it expected the UK to avoid a double-dip recession this year, with GDP now expected to grow by 0.8 per cent this year. The figure is up 0.1 per cent from the OBR’s previous estimate in November.
The forecaster then expects Britain to grow by 2 per cent in 2013 and up to 3 per cent by 2016.
Mr Osborne will still have to keep borrowing every year to pay for public services, however, adding £126bn to Britain’s accumulated debts this year alone. As spending cuts kick in, and more debt is repaid, the OBR says those accumulated debts will begin to fall by 2015.
On the Budget measures announced yesterday, the OBR confirmed that the impact was “broadly neutral” on the public finances. However, with demand for public services rising every year, both the OBR and the Treasury say the UK faces continued financial difficulties in the medium to long term.
After warning of further cuts ahead, the Treasury published new figures on the likely scenario beyond the end of the current spending period which ends in 2015.
It said its own figures showed that “in the absence of policy change, departmental spending will continue to see significant real reductions in 2015-16 and 2016-17”.
Mr Osborne signalled some of the pain would land on welfare, but experts warned last night that further cuts to the welfare budget would be incredibly difficult, given the furore that has greeted existing cutbacks.
Neil O’Brien, director of the think-tank Policy Exchange, said: “Most of the easiest savings have already been banked and most of what is left would have to be targeted on removal of currently universal benefits, pensioner benefits or disability.”
He added: “On pensioner benefits, the politics of removing free TV licences, bus passes or the winter fuel allowance are difficult. Finally, further cuts to disability benefits would rile an already vocal disability lobby.”
Extra savings could be found in the longer term by a steady increase in the retirement age, after Mr Osborne confirmed in his speech that increases will now be regularly uprated.
The future fiscal challenge was laid out last year by the OBR, which warned that Britain’s ageing population will increase demand and lower tax revenues.
It warned: “In the absence of offsetting tax increases or spending cuts, this would eventually put public sector net debt on an unsustainable upward trajectory.”