UK Pension spending % of GDP

In recent years, the level of pension spending in the UK has increased significantly in both real terms and as a share of GDP. Demographic trends suggest there will be a continued increase in the old age dependency ratio, and further rises in pension spending, at a time, when budget constraints limit spending in other government departments.

In the post-war period we have seen a rise in pension spending as a % of GDP from 2% in 1950 to over 8% in 2017.

Forecasts from the ONS suggest that – even with increased retirement ages – this spending will rise to £491bn (9.4% of GDP) by 2062/63.

In many respects, a rising share of spending on pensions is an indicator of rising living standards and in particular – higher life expectancy. Now people are able to enjoy a longer retirement than in previous decades. We may not have Keynes’ predicted 15 hour week, but many who retire at 65 can expect a further 21 years of life, with access to full state pension.

Nominal and real pension spending

In 2003, pension spending accounted for £80 billion. By 2020, that is forecast to rise to £169bn.

Even adjusted for inflation, there has been a 45% increase in real pension spending between 2008 and 2020. A large increase given, it has been a period of austerity for other government departments.

Problems of rising burden of pension spending

In addition to rising pension spending, there are additional costs associated with rising life expectancy, such as social care, housing benefit, disability living allowance and health care spending.
Crowds out spending on other public services, such as health, education and capital investment.
Concerns over contribution to national debt. A higher pension burden may require government spending cuts elsewhere. Governments borrowing to pay pension commitments is a different kind of borrowing to borrowing in recession or borrowing to fund capital investment.

Global Pension spending as % of GDP