Britain will spend more on old-age pensions in two years’ time than on education, policing and defence combined, official figures show.
Pension costs have risen sharply for years because of the government’s “triple lock”, the mechanism by which pensions rise by whichever is higher of the annual increase in average earnings, inflation or 2.5 per cent.
Last year, pension costs increased by £6 billion to £110 billion. By 2025 they are expected to have ballooned to £135 billion, a figure £2 billion more than the combined day-to-day budgets for the Department for Education, the Home Office and the Ministry of Defence, Times analysis shows.
• The big question: Should the pension triple lock be scrapped?
The departments receive separate funding for capital projects, to be spent on investment or future growth. A government source said: “That’s the cost that comes with protecting the old. They can’t get jobs, most people can, for many it’s their only sole source of income.”
But experts said that the triple lock was becoming “unsustainable” at a time of huge planned budget cuts across Whitehall over the next five years.
A third of people do not believe the state pension will exist in 30 years’ time, with those who voted Leave in the EU referendum and 2019 Tory voters feeling most pessimistic, according to polling by the Institute for Fiscal Studies think tank (IFS) and Abrdn Financial Fairness Trust.
The rise in pension spending is in part due to the ageing population, with the full impact of the late 1950s/early 1960s baby boom not yet having taken effect. Between April 2026 and 2028 the state pension age will rise to 67, and the plan is to raise it further to 68 between 2044 and 2046. However, a review is due.
A second government source said there was little that could be done to ease the cost in the short-term and that future decisions would be a “problem for the next government”. In the year to August 2022, the number of people receiving a state pension rose by 130,000 to 12.6 million.
Sir Steve Webb, the former Liberal Democrat pensions minister, said that as well as pension spending increasing, NHS and social care spending would rise to deal with the higher health costs of looking after more elderly people. He suggested ministers would eventually be forced to raise taxes.
He said: “Pensioners are a protected group electorally, so the state pension gets protected. The NHS is a kind of national religion and is protected. And therefore everything else gets squeezed.”
Webb said defence, schools and working-age benefits had already suffered but added: “The time will come when none of those things can be squeezed anymore, and that’s when the crunch really comes.”
The triple lock led to the state pension increasing by 10.1 per cent this year. Both main parties have committed themselves to keeping the triple lock until 2030.
Both Lord Hague of Richmond, the former Tory leader and Times columnist, and the IFS have said the triple lock is “unsustainable”.
The Tory peer Baroness Altmann, a former pensions minister, said: “I don’t think the triple lock is a sensible policy.”
She proposed a “double lock” based on inflation and earnings but said money could also be saved by raising the number of years of national insurance contributions needed to qualify for a state pension.
Currently that is set at 35, but Altmann said this could be increased to 45 with those without a full record being eligible for a proportionate amount based on their contribution. “It would save money but still retain the principles that are so important to the system,” she said.
The IFS/Financial Fairness Trust research found that 15 per cent of people did not expect to retire until their seventies, and 13 per cent did not expect to retire at all. The survey also showed that 47 per cent expected to be less comfortable than their parents. Those aged between 50-64 were among those who believed they would be less well off than their parents, despite their parents on average having accumulated much less wealth than them.
The IFS has said that if the state pension age rises as planned, the share of those over state pension age would rise from 24 per cent today to 27 per cent in 2050 and then to 30 per cent in 2070.
But Altmann said governments would simply have to accept that the state pension bill would continue to rise. She said: “Unless you’re recommending euthanasia or mass poverty for elderly pensioners, how else would you do it?”
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