Expenditure on pensioner benefits: An increasing part of the welfare pie?

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In early January, the Chancellor of the Exchequer, George Osborne MP set out views that a new Government would need to make £12bn additional cuts to welfare spending (and £25bn cuts overall) in the first two years of coming to power after the next General Election.

But as politicians consider whether and how to make future cuts, what are the projections for spending on pensioner benefits and are older people receiving an unfair share of the cake?

State pensions

While the costs of the state pension have risen in real terms since the late 1940s, their proportion of total benefits is not significantly out of line with the long-run trend (though it is toward the upper end). Indeed, in 2012/13, spending on the state pension accounted for 48% of total benefit spending, but this is less than in the 1970s when spending on the state pension accounted for over 50% from 1973-78 and in the 1960s (see chart 1).

Total pensioner benefits

Total pensioner benefits, which include all benefit spending (not just state pension) has increased as a proportion of total benefit spending over the last decade, but it is actually expected to fall over the forecast period.

And perhaps most importantly of all, pensioner benefits as a proportion of GDP are projected to shift down toward their long-run average (5.9%).

Looking at benefit spending to GDP rather than overall levels of spending is a better way of assessing the affordability of Government policy and this projected downward shift suggests that the continuation of the “Triple-Lock” alongside all other changes to older peoples’ benefits is no “game changer” (see chart 2).

However, over the longer term (20+ years), demographic trends are likely to test government finances if the proportion of the population in work starts to shrink at the same time as the proportion out of work rises. For this reason it is essential that Government policy and the business community embrace initiatives that seek to encourage and support longer working lives.

Ben Franklin and David Sinclair

Data sources: DWP (https://www.gov.uk/government/publications/benefit-expenditure-and-caseload-tables-2013)

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