National Insurance coffers are running dry meaning future generations should plan around receiving a “derisory” state pension, a think-tank has warned.
The Centre for Policy Studies, founded by Margaret Thatcher, says the National Insurance Fund – which holds National Insurance Contributions – could be exhausted by as early as next year.
This would have “symbolic significance” the CPS says in its report, confirming that the new single-tier state pension system is “unsustainable” without future retirees suffering less generous benefits and higher taxes.
The CPS says the Government Actuary Department’s recent prediction that the fund would last until 2035 is based on assumptions that are “seriously flawed”, including over-optimistic predictions of long-term earnings growth.
Report author Michael Johnson says: “Given that exhaustion is inevitable, the next generation should be advised that their state pension will be, at best, derisory.
“Indeed, it would be prudent to plan around not receiving anything at all.”
A DWP spokesman says: “Older people have worked hard and paid into the system all their lives.
“That is why our reforms are securing the long-term future of the State Pension – so it remains strong and keeps pace with increasing life expectancy.”
The CPS also calls for National Insurance Contributions to be scrapped, claiming there would be “no remaining justification” to collect the payments once the fund is exhausted.
The think-tank suggests a rise in all bands of income tax and “additional consumer taxes” could replace the lost revenue resulting from the abolition of employer and employee NICs.
“Today’s workers are passing too much to today’s pensioners, given the relative sizes of the two populations. This problem is only going to get worse, as the population ages.
“Sending the state pension age into retreat is intended to address this, but too late to save the fund”, the report concludes.