What if the UK Economy Stalls? The Future of the State Pension
If the UK economy continues to stagnate, as many fear, what does that mean for the sustainability of the state pension?
A key issue looming is the scheduled review of the state pension age, expected within the next two years. This will determine whether to increase the pension age from 66 to 67 in April 2026 (already confirmed) and consider a further rise to 68. These decisions come amidst mounting concerns about economic growth and government spending.
The challenges are stark. In 2024–25, the UK government is projected to spend £303.3 billion on social security, representing 10.8% of GDP—approximately a quarter of total government expenditure. Of this, 55% goes to pensioners, including £137.5 billion allocated to the state pension. Maintaining these payments depends heavily on a growing economy, but growth has been elusive, raising pressing questions about the state pension’s future.
Without meaningful economic expansion, the government may face difficult choices: how to fund the state pension or whether adjustments are needed. What is the contingency plan if growth falters?
The state pension has been a cornerstone of the UK welfare system for over a century, yet its future depends on balancing fiscal sustainability with the needs of an aging population. The Pensions Act 2014 requires periodic reviews of pensionable age, considering life expectancy and financial viability. However, in a no-growth scenario, maintaining the pension system as it stands becomes increasingly challenging.
The government’s strategy for addressing these issues remains unclear, leaving open the question of how the state pension can be preserved in an environment of prolonged economic stagnation.
