Will the state pension pot really run out next year? What you need to know
You may have heard or read recently that the state pension pot is “Running out” and will be depleted in as little as a year. Find out what’s really going on and how this could affect you.
The future of your state pension is facing rigorous questioning as a plunge in the National Insurance Fund hits, but are we really going to run out? And if so how is the Government going to combat this?
At present the state pension is funded solely by National Insurance contributions generated by the wages of the working. A major flaw in this structure is that the National Insurance “pot” is also used to fund unemployment benefits.
Since the late 1990s more contributions have been paid into National Insurance than have been paid out this has resulted a buffer for benefits. However, this has all changed recently. A report from the Centre for Policy Studies ‘CPS’ details how there’s no longer more coming in to the National Insurance fund that there is leaving with the surplus halving since 2009. The report predicts that the National Insurance fund will have depleted by 2035 indicating that the current model is not sustainable.
In addition to this, the report states that funds are likely to have depleted by 2016 given the recent drive in the growth of earnings.
The treasury may have to resort to “dipping” other funds to make up for the losses in the National Insurance fund to make sure those that are due it don’t miss out.
But what about the future?
The CPS report warns those under-45 years old will face a later retirement age. Those under the age of 35 should expect for the state pension to be dismissed all together. In the mean time, the government proposeS a new state pension to start in 2021, but those retiring from 2016 to this date are unsure of the amount their state pension could provide them.
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