The UK government fears that an ageing population and a lack of saving for retirement will result in an estimated 11 million people at risk of pensioner poverty and a funding gap of £750 billion.
According to George Osborne, the IMF and the Pensions Policy Institute, Britain is facing a 'pensions timebomb':
"Unless we take concerted action Britain is facing a savings catastrophe. But if we just forced everyone to save 15 per cent of their income tomorrow we could walk away and say pensions solved by the economy would collapse. We have to first see if we can make voluntary saving work. Over the next 10 years we have to get everyone into a pension and then we have to get them saving enough.”
But what are the facts? Is there a really a looming 'savings catastrophe'? Are people actually 'getting older' as Osborne asserts, and if so, what effect might that change in demographics - along with immigration - have on who pays for pensions, when you retire, and how much you get?
According to a report by the OECD, only Mexicans receive less from their government on retirement.
"An average worker in Mexico will receive just 28.5 per cent of their working earnings from their state pension. By contrast, a worker in Italy will get 70 per cent of their working salary from the state when they retire. Typical workers in Australia and France will receive more than half of their working wage in their state pension."
'Only Mexicans have a worse state pension than the British', The Daily Telegraph
According to the Office of National Statistics the average life expectancy is shorter in more deprived areas of the UK:
So, are working people in poorer areas paying the cost of pensions for wealthier citizens?
All workers pay national insurance, some of which goes towards funding the state pension. People from lower socio-economic classes have a lower life expectancy on average.
Pensioners in Kensington and Chelsea can expect to live to 87 whereas in Glasgow life expectancy is 74. This means that poorer workers who die earlier subsidise the state pensions of wealthier pensioners who live longer.
Life expectancy growth is slowest amongst the least advantaged socio-economic classes, so this trend is set to continue.
The Government is currently spending more from the National Insurance fund, that finances state pensions, than it is taking in.
Somewhat ambitiously, the Actuaries Department claims that there will be a National Insurance surplus by 2017 assuming an increase in employment and therefore contribution:
National Insurance Project Funds
In 2016, the Government plans to introduce the 'Single Tier Pension' to replace the Basic State Pension. Which will guarantee at least £144 per week for anyone who has worked for at least 35 years.
As a result, total public expenditure on state pensions is projected to rise significantly over the next 40 years:
Projected Expenditure on State Pensions
It is impossible to predict the future and see if the migratory movements will produce major changes in UK's population structure. but the Office for Budget Responsibility recreated some possible migration scenarios.
Population structure 2011-2060
In the next years, increased levels of immigration would see a rise in the number of pensioners in the UK but even a bigger rise in the working age population.
Immigrants are more likely to arrive as adults, so the UK receives the positive contribution from their work without having to pay for their education.
According to the Fiscal Sustainability report, many immigrants leave the UK before they reach retirement age, therefore they will not require access to pensions, healthcare and long-term care support.