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\t\tThose approaching retirement with other forms of pension are far less confident their savings will be enough.\t<\/p>\n
Britain\u2019s state pension could become financially unsustainable as early as 2036, despite recent increases in National Insurance contributions, according to new modelling by the Adam Smith Institute (ASI<\/a>).\u00a0<\/p>\n The think tank warned the Treasury is on course to spend more on welfare payouts than it receives in National Insurance receipts within just over a decade.<\/p>\n This tipping point, the ASI says, marks a \u201cfiscal crisis moment\u201d \u2013 where the system becomes structurally dependent on reserves from the National Insurance investment fund rather than current tax income.<\/p>\n Tax rises \u2018only bought a year\u2019<\/p>\n In its updated dynamic fiscal model, which factors in demographic shifts, workforce participation and national pay data from bodies including the ONS and HMRC, the ASI found that national insurance hikes had extended the system\u2019s lifespan by just one year \u2013 pushing its insolvency threshold from 2035 to 2036.<\/p>\n \u00ab\u00a0The latest analysis shows we are taxing workers and firms harder, and suppressing growth, just to keep the State Pension alive for one more year,\u00a0\u00bb said Maxwell Marlow, director of public affairs at the ASI.<\/p>\n \u00ab\u00a0It should alarm us all that such drastic action produces such a marginal result.\u00a0\u00bb<\/p>\n Employer National Insurance contributions were raised to 15 per cent in April, as part of chancellor Rachel Reeves\u2019 wider \u00a340bn tax package announced in the Autumn Budget. <\/p>\n That move was intended to stabilise the UK\u2019s public finances, but it is now drawing criticism for placing a disproportionate burden on working-age Britons while offering little long-term fiscal payoff.<\/p>\n A triple lock <\/p>\n The think tank has again called on the government to suspend the state pension\u2019s so-called \u2018triple lock\u2019 \u2013 a mechanism that increases pensions annually by the highest of inflation, earnings or 2.5 per cent.\u00a0<\/p>\n The policy has been described by economists as fiscally \u201cratcheting\u201d and increasingly unviable in an ageing society.<\/p>\n In 2018, the total lifetime liability of the welfare system \u2013 of which the state pension is the single largest component \u2013 was \u00a38.9tr, more than three times the UK\u2019s GDP.\u00a0<\/p>\n That figure is now forecast to grow even further as the population ages.<\/p>\n \u201cThe triple lock is a political luxury that the Treasury simply cannot afford,\u201d Marlow said.\u00a0<\/p>\n \t\t\t\t\tRead more<\/p>\n \t\t\tWhat is fiscal drag and how you can avoid it?<\/a><\/p>\n \u201cWe are moving towards a system where today\u2019s workers are funding yesterday\u2019s benefits, and it cannot hold.\u201d<\/p>\n Demographics point to structural imbalance <\/p>\n The warning comes amid rapidly shifting demographics. By 2040, around 22.7m people will be eligible for state benefits including the pension \u2013 with just 34 million of working age to fund it.\u00a0<\/p>\n That compares with a far more sustainable dependency ratio a generation ago.<\/p>\n Figures show that the average person born in 1956 will receive \u00a3291,000 more in pension and benefits than they contributed via National Insurance, highlighting the intergenerational imbalance at the heart of the current model.<\/p>\n From 2036, the government will need to draw on reserves from the National Insurance fund to cover welfare deficits. But those reserves will begin to shrink by 2040 as deficits exceed investment income.<\/p>\n Fiscal pressures mount amid fragile economy <\/p>\n The ASI\u2019s warning adds to growing concerns over the UK\u2019s long-term fiscal position, especially as Reeves faces a widening funding gap<\/a> following a government U-turn on welfare reform.\u00a0<\/p>\n Analysts at Deutsche Bank have cautioned that tax revenues may come under further pressure if employment levels fall and growth stagnates.<\/p>\n Meanwhile, HSBC has warned the UK risks entering a \u201cdoom loop\u201d of high taxes and low growth, particularly if bond yields remain elevated.\u00a0<\/p>\n The Office for Budget Responsibility has said future governments may need to re-examine long-term liabilities like the state pension if public spending pressures continue to build.<\/p>\n Despite the pressure, the Treasury has not signalled any change in its commitment to the triple lock.\u00a0<\/p>\n A government spokesperson said: \u201cThe State Pension remains the foundation of support for millions of people. We\u2019re committed to ensuring it is sustainable for future generations.\u201d<\/p>\n But with working-age taxpayers already under strain and economic growth still subdued, economists and business leaders are increasingly calling for structural reform.<\/p>\n \t\t\t\t\tRead more<\/p>\n