At present the ratio that people of working age bears to pensioners (the support ratio) is 3.4 to 1. If there is no change in state pension age the ratio will fall to 2.4 in 2030 as a consequence of the 'baby boom of the 1960s' retiring. Equalisation of pension ages at 65 will adjust the ratio to 3 to 1.
The state pension is financed on a pay-as-you-go system, which requires the working population to pay National Insurance contributions to provide pension to existing pensioners. With no change in pension age and with the support ratio decreasing from 3.4 to 2.4, this will require an increase in National Insurance contributions by some 30 per cent; this means the employers' contribution would increase from 10.4 per cent to approximately 13.5 per cent and the employees' from 9 per cent to 11.7 per cent. Are employers and employees prepared to pay these increased contributions?
I. M. AITKEN
The Pensions Management Institute
London, E1Reuse content