Workers under 50 face tax rise to pay for state pensions
Workers under the age of 50 face a tax rise because the state pension fund will run out in 2035, Government advisers have warned.
According to the Government Actuary's Department the fund, which takes in national insurance contributions and uses them to pay state benefits, is under strain from the UK’s ageing population and will reduce from around £25bn today to zero by the mid-2030s.
To continue paying the state pension, which makes up around 90pc of its outgoings, national insurance rates would have to be "around 5pc higher" for the fund to break even, it said.
A portion of national insurance contributions paid is held back for fund's reserves while the majority is used to pay pensions and benefits in the current year.
National insurance is paid into the fund by workers and their employers and secures their entitlement to future state pension payments.
A 5pc increase in contributions for workers would cost an employee earning around £28,000 a year an extra £125 in annual tax, while someone earning £40,000 a year would pay an extra £190 for the same state pension entitlement.
A blanket national insurance rise would likely affect workers who reach state pension age after 2035, at which point they are likely to retire.
This is anyone born in or after 1968 who is now 49 or under, who have a state pension age of 67 or higher. The potential blow to workers comes shortly after six million people in their 40s were told that their state pension age would be raised from 67 to 68.
Pensioners who have left the workforce do not pay national insurance, although it is thought that future policymakers could force wealthier retirees to start paying to make up the shortfall.
Experts said future governments faced "tough decisions" on raising taxes in the future to pay for ageing Britain's ever-growing state pension bill.