The Treasury has been quietly warned that a looming generational shift in retirement expectations could blow a hole in the UK's fiscal accounts. Young adults, surveys show, overwhelmingly expect to die before ever drawing a state pension. They are right to be sceptical. The numbers do not add up.
Last week's data from the Office for National Statistics confirmed the grim arithmetic. Life expectancy gains have stalled, and for the first time in decades, the gap between what workers pay in National Insurance and what pensioners receive is projected to widen unsustainably. The triple lock, that sacred cow of British politics, now means state pension spending will exceed £160 billion by 2030. That is more than we spend on defence and policing combined.
But the real story is on the liabilities side of the balance sheet. Generational accounting, a tool I have used for years to cut through Westminster cant, shows that today's 20-year-olds will face a lifetime net tax rate of over 45 per cent if current promises are kept. That includes paying for the pensions of their grandparents and parents, who lived through the biggest peacetime expansion of welfare in history.
Capital flight is already beginning. Young professionals, particularly those in tech and finance, are voting with their feet. They are moving to Dubai, Singapore, or Zurich where tax burdens are lower and state pension promises are more credible (or non-existent). This is not a trickle. It is a flood. The Treasury's own internal models, leaked to this desk, show that a net outflow of high earners under 35 could reduce GDP growth by 0.3 per cent per annum over the next decade.
Market volatility is the immediate concern. Gilt yields have already risen 40 basis points since the start of the year, partly on the back of this demographic data. Investors are pricing in a higher risk premium on UK debt because they see the long-term unfunded liabilities. The Bank of England's quantitative easing programme masked this for years. Now it is unwinding, and the market is beginning to demand accountability.
What is to be done? The Chancellor must be brave. The triple lock must be reformed, and state pension age linked to longevity in a more dynamic way. But more importantly, the government needs to start a national conversation about intergenerational fairness. The young are not being asked to sacrifice. They are being asked to fund a system that will collapse before they ever benefit.
For the markets, this is a slow-burn crisis. But the slow burn is accelerating. Watch the 30-year gilt auction next week. If demand falters, the discount rate on future pension liabilities will spike, and the government's debt sustainability will be called into question. That is when the real panic begins.
In the meantime, I advise every under-35 reader to ignore the state pension forecasts. Build your own nest egg. Because the only person coming to save you in retirement is you.
