Spending on elderly to rise to 40pc GDP by 2062
The OBR forecasts spending, other than on debt interest, to fall from 36.7% of GDP to 36.1% between 2017/18 and 2020/21, but then rise to 40.6% by 2062/63 as demographic trends lift spending on health, pensions and long-term care.
In its report the OBR said: “These projections suggest that the public finances are likely to come under pressure over the longer term, primarily as a result of an ageing population.
“Under our definition of unchanged policy, the government would end up having to spend more as a share of national income on age-related items such as pensions and health care.”
It said that in the absence of offsetting tax increases or spending cuts this would widen budget deficits over time and eventually put public sector net debt on an unsustainable upward trajectory.
Nigel Waterson, chairman of the Equity Release Council, said that catering for an ageing population will be one of the defining economic and political challenges of the next 50 years.
He said: “It presents little choice in terms of increasing taxes and cutting spending to support healthcare, state pensions and long-term social care. The alternative, an ever widening budget deficit, is unthinkable.”
Waterson wants people to alleviate the problem by using their existing resources.
The Lords select committee’s Ready for Ageing? report estimated that £350bn of housing equity will be accessible to people over the state pension age by 2030 which would go a long way to balancing the equation of retirement finances.
He said: “Limited resources already mean government is encouraging people to become more self-reliant – but even those in work struggle to set aside enough savings for retirement. According to our latest research just one in four adults (25%) believe their ability to save for retirement will improve in the next five years, with a similar number expecting to be in a worse position (22%).”
Stephen Lowe, director at retirement income specialist Just Retirement, added: “This report makes it clear that the difficulties we already face with an ageing population are going to be far more severe for our children and their children – long-term care costs alone, as a proportion of GDP, are projected to almost double by 2062.
“While the industry is working with the government to lead the way, by ensuring that everyone can afford the cost of care in later life without losing their home, it is vital that those planning for retirement seek advice so they understand the personal and financial realities of later life.”