News | Published June 06 2019

IFS calls for tax hikes or reforms to meet demands of ageing UK population

The Institute for Fiscal Studies has implored politicians to consider the need for higher taxes or major reforms to provide adequate care for the country’s ageing population.

To assess the response from the care sector, we spoke to Dr Anna Dixon, Chief Executive of the Centre for Ageing Better.

Speaking at a lecture marking the centenary of the Government Actuary’s Department, IFS director Paul Johnson pointed out the “catastrophic risk” of people losing their assets in the existing social care system.

Johnson added that the pension system is “unlikely to be stable” long term, saying that it places too much risk on individual shoulders as opposed to evenly distributing it across the wider population.

He said: "A combination of bad design, bad policy, low interest rates and unanticipated increases in longevity have killed our defined benefit pension system in the private sector. What's left is a system of individual saving pots.

"With current pensioners on average better off than ever, the introduction of what will become a near universal single tier state pension, and auto-enrolment boosting workplace pension coverage to its highest ever rates, it easy to think that all is well. It is not.

"Inadequate contributions accompany very low interest rates; individuals face all the risk of low returns; and, with pension freedoms, very few buy annuities so there is no longevity insurance for most.

"A pension system without any risk sharing is unlikely to be stable in the long run.”

Johnson concluded that there is a clear case for some form of social insurance and that radical reform or higher taxes must be considered to help cope with demand.

“For decades spending on health and pensions has risen without state spending growing. That reflected sharp falls in defence spending and, over the last decade, falls in spending on many other services. It seems unlikely that further substantial falls in other spending are possible to accommodate growing demands on the health and pension systems, implying either radical reform or higher taxes.”

Dr. Anna Dixon, Chief Executive of the Centre for Ageing Better, is in agreement that tough calls will need to be made to secure the future of social care.

She said: "Hard choices must be made if we are to adequately fund social care and guarantee everyone a decent pension."

However, Dr. Dixon feels that rather than simply consider hiking taxes and racking up time debating it, reform to the current system may pose a more effective, longer-term solution.

"While debates on tax remain politically contentious, radical reform must focus on reducing demand for care and helping people save for later life."

“That means supporting everyone to be healthier and more active as they age, enabling people to work for longer so they can pay into pensions, and offering more support to unpaid carers.”

Labour Shadow chancellor John McDonnell labelled the current pension system precarious and will pledge a further £8 billion to the care system should the party be elected.

A full green paper on social care has been repeatedly called for but has not been forthcoming.

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Authored by

Scott Challinor
Business Editor
June 06 2019

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