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DISCUSSION PAPER PI-0413

On the sustainability of the United Kingdom state pension system
in the light of population ageing and declining fertility

David Blake and Les Mayhew

ABSTRACT

As a result of population ageing and declining fertility, the UK state pension
system is unlikely to remain viable in the very long run without a steady inflow
of young immigrant workers from abroad. However, with prudent economic
management and continuing economic growth, immigration requirements can be
contained and modest real increases in pensions are a possibility. Beyond 2020,
further ageing of the population will lead to fiscal pressures and the need for
remedial measures such as the raising of the state pension age. Higher economic
activity rates among older people, including deferred retirement, will to some extent
ameliorate but not eliminate these pressures. If fertility picks up over the next few
years, this will also help, but not until after 2030. Without favourable economic
growth, the fiscal problems will appear much sooner and could lead to cuts in
pensions or to significantly higher contribution rates.