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Four in 10 young pension savers expect state support in retirement to be at least as generous as current levels, setting up the UK for “generation after generation” of disappointment, according to JPMorgan Asset Management.
In a survey of 2,000 Britons carried out for the asset manager by research agency Opinium, 22 per cent of savers between the ages of 18 and 34 believed the UK’s state pension would be more generous when they retired than today, while just under a fifth believed it would be about the same.
About a third of young respondents either didn’t know or thought it would be “slightly” less than current levels, while the rest thought it would be “a lot” less generous.
The results of the survey suggested that 40 per cent of young savers, amounting to millions, had a false sense of security about the future state pension, a finding which alarmed some sector experts.
Karen Ward, chief strategist at JPMorgan Asset Management, said this survey result was “very concerning” and politically difficult to fix, given the trajectory for government finances as the population ages.
“We are ageing as a nation and working out the intergenerational decision of how we are going to square that circle is something our politics can’t cope with,” Ward said.
“It means generation after generation will be disappointed by what the state can provide for them and won’t be given the time to get their own house in order — that’s the crux of it.”
The full rate of the UK’s state pension is £230.25 per week, or £11,973 a year, paid to those who have made 35 qualifying years of national insurance contributions.
State pension payments to the current cohort of pensioners are funded by taxes paid by workers.
The state pension age — which sets when the benefit can be accessed — is 66 for both men and women, set to rise to 67 between 2026 and 2028 and to 68 before the middle of the century.
The state pension increases every year by consumer price rises, average earnings growth or 2.5 per cent, whichever is highest, in a policy known as the “triple lock”, introduced by the 2010 coalition government to ensure pensions stay in line with living costs.
Labour has vowed to protect the triple lock, despite pensions minister Torsten Bell expressing in his previous role as chief executive of the Resolution Foundation think-tank that it was “not a sensible mechanism for pensions uprating”, arguing that it should be consistent with working age benefits.
The UK government spends about 5 per cent of GDP on state pension benefits, up from 3.5 per cent at the turn of the century. The state pension cost £124bn in 2023/24.
The Office for Budget Responsibility, the UK’s fiscal watchdog, has forecast that based on current policy total state pension spending could surge to 8 per cent of GDP by 2073, or more if growth continues to stagnate.
“The pensions triple lock is not only fiscally unsustainable, but intergenerationally inequitable,” said Ward.
“Pensions should rise in line with the salaries of the taxpayers that are paying the pensions, so average earnings.”
Helen Morrissey, head of retirement policy at Hargreaves Lansdown, added that it was “hugely important that people understand that they do have to make their own provision for retirement”.
The survey also found that only half of those earning more than £40,000 per year expected state support to be less generous when they retire.
The findings come as the UK is about to launch a review into pensions adequacy, which will assess the state pension alongside workplace and personal pensions, with the aim of making changes to help boost the retirement prospects of millions of workers.