Pensions are a ticking time bomb

Grovelawn Financial News 13/04/2012

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IMF advises tackling the problem soonest

The International Monetary Fund has issued a warning that Britain’s ageing population is a pension’s time bomb. The total cost could be as much as £750billion due to even the slightest increase in the life expectancy of most people. The IMF believes that the life expectancy has been underestimated by roughly three years and would make public finances unsustainable as the entire cost would fall on tax payers resulting in the UK’s public debt rising from 76 per cent of GDP to around 135 per cent.

It is estimated that males born in 2010 will live an average 78.2 years and females 82.3 years and a third of babies born in 2012 will live beyond their 100th birthday. Currently, pension funds estimate that an average male today who has reached 65 years of age will go on to live to 86.2.

The IMF suggests that as precaution governments should act immediately to alleviate the situation by higher retirement ages and higher annual contributions along with reduced payouts. The IMF also suggests sharing the costs between individuals, companies and the Government. Laura Kodres, the assistant director of monetary and capital markets at the IMF, said: “The longer you ignore it, the more difficult it becomes to resolve. The time to act is now.”

It should be noted that the IMF’s forecasts relate to the direct costs of maintaining pension incomes at their current levels. The figures don’t include associated costs such as health and social care.

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