The Government should consider scrapping the state pension and replacing it with compulsory defined contribution pensions to get national debt under control, the Institute of Economic Affairs suggests.
Rather than tinkering with the state pension age or charging for some NHS services, the free market think-tank says more fundamental reform, including a mandatory health insurance system, is necessary to stop future generations being overburdened with debt.
The IEA says the Office for Budget Responsibility’s projection of the Government savings needed to meet its debt target is a huge underestimate. The OBR says tax increases and/or spending cuts of 1.3 per cent of national income from 2018 will be necessary to ensure debt-to-GDP falls to 20 per cent by 2063/64 but the IEA says spending needs to be slashed by 9.6 per cent immediately.
The report says: “Direct cost-saving measures such as changing eligibility or the generosity of pensions and healthcare provision would relieve the pressure somewhat. However, an ageing population will inevitably mean more resources being diverted towards healthcare and pension spending.
“Rather than imposing crippling tax burdens on the working population to maintain the status quo provision, fundamental reform of pensions and healthcare is desirable.”
The report lists several pieces of policy that have significantly added to Government debt, including the triple-lock on state pension payments, the Dilnot social care reforms, nationalising the Royal Mail pension fund and abolishing contracting-out of the state second pension.