RACHEL RICKARD STRAUS: Goodbye to triple lock – I doubt it'll be back to stay

It’s an open secret that the state pension operates like a giant Ponzi scheme. When workers pay National Insurance contributions, they are not ring-fenced to fund their own state pension. There is no nice pot of money accruing somewhere for me, labelled ‘Rachel’s retirement’. Instead the contributions of workers today are used to pay the state pensions of current retirees. 

Of course, there is no theft or deception involved, as in actual Ponzi schemes. But if a private pension was run like the state pension – with funds only able to pay a fraction of its liabilities – the managers would surely be arrested. 

This works well while there is at least as much going into the pot as there is coming out. But a report by the Government Actuary last week suggested that the days of balancing the books were numbered. 

The National Insurance fund is in surplus, but is likely to be in deficit by next year. In fact, another report by these same number-crunchers last year predicted the fund would be exhausted in a decade. 

The pot is emptying for two main reasons. First, the population is ageing so fewer people are paying in and more are claiming. While in 2020 there were 27 retired people for every 100 workers, by 2085 there are forecast to be 43. 

Second, the state pension is getting more generous – and therefore expensive – every year thanks to the triple lock. This guarantees it rises every year by the rate of earnings growth, inflation or 2.5 per cent – whichever is highest. This year’s increase of 10.1 per cent – set to come in this April – will be the largest rise since 1991. 

So what can be done to ensure the state pension is available to future generations? There are a number of options – none especially palatable. 

Workers could be asked to pay more National Insurance contributions. But with millions already struggling to make ends meet, higher taxation could be a very tall order. 

Source of data and images: dailymail