Part 291: The State Pension Crisis

Hello and welcome back to Mortgage Advisor on FIRE.  This week, I look at the looming crisis with the state pension. Also, another exhausting week at work, and an amusing weekend of football.

Weekly Update

It’s been another exhausting week, but it’s another week closer to FI.  In many ways, this new job is better than Lloyds, but it’s more tiring.  I’m hoping that, as I get used to it, it will become a little less draining.  The days are already an hour longer than in my previous role, and on Friday, I ended up working from 9am to 7pm, and by the time I logged off, I was done.  I went through to the living room and collapsed on the sofa.  The next thing I know, I’m being woken up by Oana with my dinner.  

On the subject of dinner, we made an amazing veggie bolognese with mushrooms and lentils.  Well, I say it was veggie, but that’s not technically true.  I’ll explain as I run through the recipe.

The first step was to make a soffritto: chopped carrot, onion, and celery, gently cooked in oil.  Then, I added some garlic, chopped mushrooms, beef stock, marmite, passata, and lentils.  Then we let it simmer for a while.  As it was simmering, we added the rind from the parmesan and let that melt a little into the sauce.  I added some balsamic vinegar to the sauce during cooking as well.  We served it with some penne and grated parmesan, and it was amazing.

So, although it was mostly veggie, the beef stock and the parmesan disqualified it from being totally vegetarian.  Yes, parmesan, as well as other cheeses such as gruyere, are not vegetarian as they use an enzyme from the stomach lining of cows and other ruminant animals. The number of people I’ve encountered who claim to be vegetarian and still eat these things was surprising, until I realised I gave the average person too much credit.

Veggie or not, this was a very tasty meal, and we had enough to see us through a couple of days.  

On Saturday morning, we went for a haircut.  I’ve not had a haircut in something like three years, partly because I don’t like having it done, but also because I’ve been growing my hair.  It didn’t get off to the best start when we rocked up to find the place had closed down.  A quick Google search explained that they’d just moved down the road – crisis averted.  

Their new location is much better with more space and natural light.  Also, one of the guys there had his dog, Pippa, keeping him company.  She was friendly, but a little nervous.  She wouldn’t let me pet her, but she kept booping my hand with her snout.  Her owner brought me a snack to feed her: a big piece of dried meat, and she wolfed it down.  These cats and dogs are great, and we don’t deserve them. 

After our haircuts, we walked through the city centre to try the food market, but it was tainted a little by opposing protests.  On one side was a crowd supporting Tommy Robinson and the Far Right.  On the other side was a Unity Rally organised by Sheffield Stand Up To Racism.  All I’m going to say is that if I had to identify which group was which, it would have been incredibly easy.  It’s also heartening to see so many people stand against fascism and racism.  The two groups were shouting at each other with the police in between.  

I fear that the right-wing extremists will grow in popularity because, in general, their leaders seem to shout louder and longer.  Reasoned debate and critical thinking are not traits one would relate to Trump, Farage, Johnson, or Vance.  When I think of these people, a quote from Angel comes to mind:

“Is pathological idiot an actual condition?”

Once we made it through the protests, we had a look at what the market had to offer.  We snapped up some cookies from one stall, and some pakoras from an Indian street food vendor we like, and saved both to take home.  We wanted some lunch though, and we decided on a Venezuelan vendor and went for the Alabama; fries, fried chicken, garlic mayo, cheese, and crispy onion.  It was great, and we would have had more, but it was quite rich.  

Saturday Laughs

As a lifelong Sheffield Wednesday fan, I don’t think I could have written a better, or funnier, end to the season for Sheffield United.  They bottled their attempt at automatic promotion, and were winning the play-off final 1-0 with 75 minutes played, and they managed to pull defeat from the jaws of victory and end the game 1-2.  Truly, the club that keeps on giving.

No doubt they’ll take this defeat with their usual lack of class and grace.

What I’m Doing

Listening: Sum of Us: A History of the UK in Data by Georgina Sturge.

Watching: Daredevil: Born Again.

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Financial Update

Assets

Premium Bonds: £19,000.00.

Stocks and Shares ISA: £111,909.72.

Fuck It Fund: £4.00.

Pensions: £94,149.69.

Residential Property Value: £239,368.00. 

Total Assets: £464,431.41.

Debts

Residential Mortgage: £179,200.56. 

Total Debts: £179,200.56.

Total Wealth: £285,230.85.

My pensions are edging towards £100k, which will complete the second part of the FI Trinity.  Other than building up my pensions and paying down our mortgage, there’s not much I can do until the ISA window reopens next year.  It’s almost certainly going to be the case that when I have spare cash, it will go into my Premium Bonds or as an extra payment on my mortgage.

The Updated 4% Rule: 4.7%

The man behind the original 4% rule, Bill Bengen, has updated his guidance and suggests now that 4.7% is a safe withdrawal rate.  To be honest, 4% does feel a bit low for my risk tolerance, but I understand why some people may feel more comfortable with a lower withdrawal rate.  

Moving from 4% to 4.7% is huge, though.  For someone who is aiming to retire with an income of £24,000p/a, the required fund value goes from £600,000 to £510,638.  The thing is, I view the whole idea of a SWR as a guide rather than a commandment that must be religiously adhered to.  If you’re planning to use a bridging fund to take you to pension age, then SWRs are probably more important once you access your pension.  

Increasing Retirement Age

One more time for those at the back, there’s not a set retirement age.  You can retire whenever you want if you have the funds.  What we have, instead, is an age at which you can access your pensions, and that system may need to change…

Why the State Pension Needs to Change Sooner Than You Think

We talk a lot in this space about planning for retirement and building long-term security. But today I want to look at something a little bigger than just personal finance: the future of the UK state pension and why it may be time to stop counting on it as a guarantee.

A Demographic Time Bomb

Let’s start with the basics. The UK, like most developed nations, is facing a demographic crisis. Fewer children are being born, while more of us are living longer. That sounds like a win for medicine and quality of life, and in many ways, it is, but it comes at a cost.

The state pension system is funded by those who are currently working. It’s not a savings pot; it’s a transfer system.  You don’t have your own state pension savings account, you have a record of national insurance payments.  Those payments are then transferred to those in receipt of the state pension.  But what happens when the ratio of workers to pensioners drops?

UK Dependency Ratio Over Time

A few decades ago, there were 4 workers for every pensioner, but that ratio has been steadily dropping.  Estimates vary, but most agree that in the next 20-30 years, it could drop to 2 workers for every pensioner. That means fewer people paying in, and more people drawing out.

The result? Pressure on government spending, higher taxation, and an unsustainable pension promise.  It’s not just the impact on the state pension, but the impact on other services, like the NHS, which will be under increased strain with an older population profile.

What Might Change?

Here are some realistic, and already rumoured, ways the system could evolve:

Raising the State Pension Age

Your state pension age depends on your date of birth.  For me, it’s 68. For my parents, it is 67.  It’s not unreasonable to think that for children now, it could easily be at least 70 before they can access a state pension.  Back in the day, when you got to 65, you would expect to live a further 15 years or so.  Now, we have more people but those people are also projected to live longer.  

Means-Testing the Pension

A controversial move, but one that’s gaining traction. This would remove the universal aspect of the pension and give it only to those deemed to “need” it, eroding its reliability for middle-income retirees.  I think this would be a disaster as it would disincentivise people to take control of their finances through private pensions and investments.  After all, why bother if the government will just bail you out?

Changing NI Contributions

Expect pressure for younger generations to contribute more, while possibly receiving less. The “generational unfairness” is only likely to deepen.  One thing that could work would be to offer different levels of national insurance contributions in return for different benefits.  For example, a higher rate of payment to achieve a higher level of benefit in retirement.  Another option would be to roll up NI and PAYE into a single tax structure, with reworked income brackets.  

Indexing Payments Differently

The triple lock may not survive indefinitely, but it would be political suicide for whichever government seeks to scrap it.  

Maybe We Need More Fundamental Change

Perhaps the state pension needs to change in the context of even greater change.  I’m a believer in universal basic income, and perhaps this should be tied to the state pension in some way.  Everyone would receive a UBI, but those who then contribute more to society can earn credit towards a greater state pension.  Those working in the NHS, emergency services, the military, or in jobs that help society function, like refuse collectors or teachers, could earn credits based on length of service that give them a greater state pension entitlement.  

What This Means for FIRE

If your retirement plan depends on the state pension, ask yourself this: What if it’s reduced, delayed, or removed entirely?

I treat it like a wildcard. Nice to have if it’s still around, but not part of my essential calculations.

Here’s how I’m responding:

• Building a larger ISA buffer and Premium Bonds pot
• Treating my pension contributions as a future tax shield, but not a lifeline
• Considering the healthcare and housing costs that may hit harder in later life
• Trying to stay healthy now to keep long-term costs down

FIRE isn’t just about wealth. It’s about independence.  Independence from employers, from markets, and yes, even from the state.

The state pension system was built in a world that no longer exists. It’s been incredibly valuable for millions of people, but the writing is on the wall.

Hope for the best, plan for the worst. If the pension is still there for us, brilliant. If not, at least we’ll be ready.  Either way, it’s going to be more important than ever to make sure the children of today receive a proper financial education.  

DISCLAIMER

The views and opinions in this blog are my own, and do not represent the views or opinions of my former, current, or future employers, nor should they be considered advice.

If you want personalised financial advice, seek an appropriate professional.  If you are in financial difficulty, seek advice via the resources below:

StepChange

MoneyHelper

Biolink 

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