Will massive costs mean state pension is scrapped?

pensioners in a nursing homeJohn Stillwell/PA Archive/Press Association Images

The Department for Work and Pensions has revealed that the cost of providing benefits to pensioners is currently a staggering £90 billion. However, the truly alarming figure it released yesterday was that in 50 years time that bill is going to quadruple - to £419 billion.

And this could spell the end of state pensions as we know them.
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Rising costs

The bulk of the cost of pensioner benefits is the state pension - which currently costs £60 billion and is set to rise to £302 billion by 2061. Even over the next 20 years the bill for the basic state pension almost doubles to £116 billion.

We have to add into this the state second pension, which rises from £15 billion today to £109 billion in 2061/62.
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Tom McPhail, Head of Pensions Research at Hargreaves Lansdown, says: "The really scary thing is that these figures are inflation-adjusted, nominal figures would be even bigger. And they don't include the £1 trillion of public sector pension liabilities!"

Other benefits

There are also a number of other benefits available to pensioners, such as free bus travel, free TV licences and the winter fuel allowance. Recently they seem to have dominated all the talk of cuts.

However, their total cost is just £3 billion, and although this is set to reduce to £2 billion by 2061/62, it's clearly just a drop in the ocean - which McPhail calls: "a side-show of a side-show."

Affordability

The figures remain extraordinary, and raise the vexed question of how on earth we are going to afford all of this.

McPhail has a stark warning: "The answer is we aren't. The government is almost certainly going to have to raise retirement ages and water down state pension benefits. The bottom line is there is little other choice. It may well do this on the sly, by tinkering with the inflation link, or indeed by changing the definition of inflation - which they are considering at the moment."

"It's unlikely to happen all at once. The last government got the ball rolling, the current government is giving it a good heave, and no doubt future governments will keep it in motion. The result is that tomorrow's pensioners are likely to suffer death by a thousand cuts to their state pension entitlement."

What can you do?

This will mean that those without private provision will be left high and dry. You may think you can look forward to a state pension you can afford to live on - but as your retirement age draws closer it could all change. As McPhail says: "What you get from the state might be like that pot of gold at the end of the rainbow. You might actually finally catch up with it, only to find out it is little more than a few chunks of lead."

The only safe option is to assume you will have to look after yourself. Stephen Gay, Director of Life, Savings and Protection at the Association of British Insurers says: "It cannot be stressed enough how important it is to save for retirement... The fact that we are living longer is great, but we can no longer have our heads in the sand about how we fund our income in retirement. The state pension is a foundation, but most people need more and the earlier people start to save the easier they will find it to build enough savings for their later life."

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Will massive costs mean state pension is scrapped?

Using a mobile phone to make and receive calls, send texts and browse the web while abroad can be extremely costly – especially if you are travelling outside the European Union (EU), where calls can cost up to 10 times as much as at home.

To avoid high charges, Carphone Warehouse suggests tourists ensure a data cap is in place, use applications to check data usage, turn off 'data roaming', avoid data-intensive applications such as Google Maps and YouTube and use wi-fi spots to update social networking sites.

Payment Protection Insurance (PPI) is supposed to help people to continue meeting their loan, mortgage or credit card repayments if they fall ill or lose their jobs. However, policies are often over-priced, riddled with exclusions and sold to people who could not make a claim if they needed to.

At one point, sale of this cover - which was often included automatically in loan repayments - was estimated to boost the banks' profits by up to £5 billion a year.
Now, though, consumers who were mis-sold PPI can fight back by complaining to the bank or lender concerned and taking their case to the Financial Ombudsman Service (08000 234567) should the response prove unsatisfactory.

It could be you, but let's face it, it probably won't be. In fact, buying a ticket for the Lotto only gives you a 1 in 13.9 million chance of winning the jackpot.

With odds like that, you would almost certainly be better off hanging on to your cash and saving it in a high-interest account.

No-frills airlines such as EasyJet may promote rock-bottom prices on their websites. But the overall fare you pay can be surprisingly high once extras such as luggage and credit card payment fees have been added - a process known as drip pricing.

Taking one piece of hold baggage on a return EasyJet flight, for example, adds close to £20 to the cost of your flight, while paying by credit card increases the price by a further £10.
It may therefore be worth comparing the total cost with that of a flight with a standard airline such as British Airways.

Cash advances, which include cash withdrawals, are generally charged at a much higher rate of interest than standard purchases.

While the average credit card interest rate is around 17%, a typical cash withdrawal of £500, for example, is charged at more than 26%.
What's more, as the interest accrues from the date of the transaction, rather than the next payment date, costs will mount up even if you clear your balance in full with your next payment.

Supermarkets such as Tesco and Asda often run promotions under which you can, for example, get three products for the price of two.

However, it is only worth taking advantage of these deals if you will actually use the products. Otherwise, you are simply buying for the sake of it, which is a waste of your hard-earned cash.
To avoid paying over the odds, it is also worth checking the price per kilo to ensure that larger 'economy' packs really are cheaper than the smaller versions.

Buy a train ticket at the station on the day of travel and the price is likely to give you a shock - especially if you are travelling a long distance at a busy time of day.

However, you can cut the cost of train travel by 50% or more by going online and making the purchase beforehand - especially if you book 12 weeks in advance, which is when the cheapest tickets are on sale.
Other ways to reduce the price you pay include avoiding peak times and taking advantage of so-called carnet tickets, which allow you to buy, for example, 12 journeys for the price of 10.

Most High Street banks offer packaged accounts that come with monthly fees ranging from £6.50 up to as much as £40, with a typical account charging about £15 per month.

Various benefits, such as travel insurance and mobile phone insurance, are offered in return for this fee. But whether or not it is worth paying for them depends on your individual circumstances.
Before signing up, it is therefore essential to check that you will make use of enough of the benefits, and that you cannot get them for less elsewhere.

Overseas money transfers or travel money purchases attract the same high rate of interest as credit card cash withdrawals.

Worse still, most credit cards – and debit cards – also charge you a foreign loading fee if you use them to make purchases while abroad.
You can, however, avoid these charges by using a Saga Platinum or Nationwide Building Society credit card.

Numbers starting 0871 cost 10p or more from a landline, while those starting 09 can cost more than £1 a minute from a mobile phone.

And the operators of these high-cost phone lines, some of which are banks, often get a cut of the call charges.
Most 09 numbers are linked to scams and should therefore be avoided at all costs, while 0871 numbers can often be bypassed by searching for an alternative local rate numbers on the saynoto0870.com.
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