The International Monetary Fund has warned the UK it faces a £750bn pensions time bomb as life expectancy rates grow faster than expected.
The IMF says governments and the financial sector have consistently understated how quickly lifespans will rise by around three years, a gap which could make public finances unsustainable.
The Washington-based firm’s report into longevity risk says it is not unreasonable to assume the entire cost of this gap could fall on the UK taxpayer and the country’s public debt could rise from 76 per cent of GDP to as much as 135 per cent – effectively adding an extra cost of £750bn to national debt by 2050 to pay for the increased costs.
Latest figures on life expectancy from the Office for National Statistics suggests that males born in 2010 will live an average of 78.2 years, while females will live an estimated 82.3 years. Approximately one third of children born in 2012 are expected to live until 100.
The extra costs would come from state pension and public sector pensions. The report also says part of the increase would come from the state having to rescue failed private sector schemes, which it says are equally unprepared for a rise in life expectancy.
The IMF has urged governments to tackle the problem now before it is too late and suggested a further increase in retirement ages, higher contributions into pension pots from employers and employees, and smaller payouts to those in old age.
The report also said countries should consider linking the retirement age to life expectancy – an option being explored in the UK.
The state pension age is already being increased to 67 for men and women by 2028, and to 68 by 2046.