Wow… less than 12 years to go.
When the US raised the retirement age in the early 80s they didn’t raise it on anyone over 45, or put another way, anyone within 20 years of the current, younger, retirement age.
UK obviously did not see any sort of precedent in that.
Well, “reports say”.
They’ve not changed it yet.
They will be raising the age to 68 as its the only real way to kick the can down the road and buy more time.
For the UK;
Because of the triple lock which guarantees that State Pension will increase by the lowest of [Average Earnings, CPI, 2.5%] every year, we are facing a material budgetary hole as the population ages (average age of UK is now 40-44 bracket).
We have a large amount of over 65s (will be 25% in the 2040s), who get their pension benefits uprated faster than economic growth in any given year.
This creates economic problems and a huge inter-generational imbalance as spending on the over 65s (Pension and Healthcare) is crowding out spending on education, childcare, and capital investments. This has made the over 65 cohort the wealthiest out of all the demographic brackets, leading to the current problems that the UK faces.
Brexit made all of this worse because it was young EU immigrants who were paying enough taxes to still make the pension math somewhat viable over a 20 year time horizon. But many have left back to the EU (creating a labour shortage), with others being off sick (long covid and unable to access NHS care. Waiting list for procedures is 7 million procedures long and growing) leading to material funding shortfalls over the next 20 years.
So the choice is to either raise taxes (not possible now because working folks are too heavily taxed as is and we have a serious cost of living crisis going on), or buy time by raising the age to 68 faster for the State Pension.
The financial situation in the UK really is quite dreadful.
I remember a long time ago on the AO that we were discussing healthcare and the likely need to have to ration it if you had a universal system. Thats were the UK is right now.
This modelling paper explores how much in National Insurance Contributions (NICs) has been paid in by various age groups (20, 40, 60) over their working lifetimes in 2022 vs how much State Pension benefits they will be paid over their retired years. This paper is part of the review for moving the State Pension to 68.
Modelling points to the folks aged 60 (2022) having paid in far less NICs over their working lifetimes vs the State Pension benefits that will be paid out to them. This is due to NICs having been lower for that age group in the past.
The link between NI payments and Pension benefits is better aligned at earlier age (being 40 in 2022) due higher NICs payments.
The older folks may have paid less direct taxes but they probably created more indirect taxes by having more children.
In aggregate having fewer kids essentially amounts to a decision to pay higher entitlement taxes. (In any country.)
Those children will themselves be entitled to government benefits. You’re double counting to attribute the taxes paid by children to their parents.
Ok, count 50% of the taxes you pay and 25% of the taxes each of your children pays then.
The taxes each individual pays are credited 50% to themselves, 25% to their mothers and 25% to their fathers. If we’re doing this in aggregate then how you count adoptions would be mostly irrelevant since the adoptive parents are pretty close to the same generation (on average probably older) as the birth parents.
In the UK the tax base is much smaller vs the US
We have a tax free amount of £12,500/year (the largest amount out of any OECD country)
State Pension is £11,000/year
About 50% of people pay £0 income tax.
So if you look at the math, you have:
[shrinking tax base] paying for [increasing pensions]
Only immigration was kind of holding back the long term funding problems.
And now with long covid and NHS problems we are facing an even more serious crunch as the tax base is made even smaller. Thats why you cannot tax your way out of this problem via the working + income tax paying population. They are being squeezed from all sides at this point. Raising the age to 68 is the best solution.