Yahoo Finance Old, rich and living on benefits: welcome to the state pension capital of Britain
East Preston feels an unlikely stronghold of benefits dependency. The genteel village on the West Sussex coast might be the closest thing that Britain has to a moneyed pensioner utopia.
When Isabel (not her real name) arrived with her husband six years ago, it was an expensive move.
“We have gone from having a five-bedroom detached house in the Midlands, which we sold, to taking out the biggest mortgage of our lives to buy a two-bedroom bungalow here,” Isabel says.
Yet they had always wanted to live by the sea and be closer to their children on the south coast. Plus, East Preston is perfect for pensioners.
“There is a great community here,” Isabel, 71, says. “We have 15 petanque teams. There’s outdoor bowls as well. I think I heard the number quoted that there are more than 70 groups of things to do here.”
Despite this wealth and cohesion, East Preston gets more help from the taxpayer than much of Britain. It has the largest proportion of state pension recipients of any community.
Timebomb awaits next chancellor
East Preston and the eastern half of the neighbouring parish of Rustington together make up a geographic unit that the Office for National Statistics (ONS) calls an MSOA, or middle-layer super output area. It is an exceptional one.
Telegraph analysis shows that East Preston and Rustington East is the only such neighbourhood, out of the 7,264 across England and Wales, where the over-66s constitute more than half of the population, at 51pc.
It also has the largest proportion of people receiving state pension, at 49pc. Only four of the 7,264 MSOAs in the country have a share above 45pc.
The tension between East Preston’s wealth and its cost to the state gets to the heart of politically explosive trade-offs facing the new chancellor from the end of this week.
The nation’s finances are sitting on a pensioner timebomb that will be ticking for the new – almost certainly Labour – government.
The state pension, which is not means-tested, is the second-most expensive item of public spending after the NHS, making it Britain’s biggest benefits bill. Spending on the state pension alone in 2023-24 was £124bn, or 4.8pc of national income, according to the Resolution Foundation. Altogether, pensioner benefits – including state pension, pension credit and winter fuel payments – make up 48pc of the Government’s total welfare spend, according to the Office for Budget Responsibility (OBR).
As well as pension support, older people are more likely to have health problems. Spending on old age health and pensioner benefits combined will total £270bn in 2024-25, according to the Resolution Foundation. This is worth one tenth of the entire UK economy. This is a problem not just because of the size of these sums but because Britain is ageing, with the pensioner population increasing much faster than the working age population that will pay for it.
The state pension is an “unfunded liability”, warns Sir Steve Webb, a partner at LCP and a former Liberal Democrat pensions minister in David Cameron’s coalition government.
“We don’t set money aside. Today’s National Insurance is paying for today’s pensioners. That’s the fundamental problem. It’s not like workplace pensions where money is set aside and is invested in a pot for you when you retire, it is an intergenerational deal. The same is true of the NHS,” says Sir Steve.
Retirees paid for the state pension of the generation before them, so they have a right to expect the same from the generation below them. Except there is a difference, because there will be far more of them in proportion to the people to pay for them. Since 2009-10, the number of people claiming the state pension has soared by 570,000, rising from 12.4m to 13m, according to the Resolution Foundation.
Between now and 2070, the number of pensioners in the UK will swell by another four million. Over the same time, the working age population is expected to rise by just one million.
By 2050, in order to maintain the same ratio of working age people per retiree, the UK would need to increase the state pension age from 66 today to 71, according to analysis by the International Longevity Centre. But not enough people would be physically able to keep working for this long.
When demands on the welfare state rise in proportion to the number of people to pay for it, three things can happen, says Sir Steve. Either the quality of public services goes down, the government increases borrowing, or it increases its tax take.
“Public services get rationed. Think about NHS waiting lists, that is a rationing mechanism. It is saying we can’t afford to do everyone’s hip replacements, so we have a waiting list. It already happens, it will happen more,” says Sir Steve.
Longer term, this issue could mean big compromises for an incoming Labour government that has made manifesto pledges to simultaneously reverse nearly a decade of rising NHS waiting times, to “not raise taxes on working people”, and to commit to the Chancellor Jeremy Hunt’s fiscal rule to get debt falling by the end of the forecast period.
So what can East Preston tell us about the future of the state pension as Britain ages?
Pensioner paradise
The seaside village consists primarily of grand, gated estates with peaceful names (the Sea Estate, The Willowhayne, Seafield Road, Angmering on Sea). They were built by private developers along the sea front in the early 1900s and have no public rights of way or footpath access to the pebble beach. There are few daytrippers to East Preston and there is no traffic noise.
Instead, there is fluttering bunting outside The Tudor Tavern, birdsong and, indeed, the clink of petanque as a local U3A group gathers for their Thursday morning regular on the village green. “We should have worn berets,” jokes a player.
Hydrangeas, roses and lavender are in full bloom in front gardens that look competitively manicured. Someone has crocheted a hat for the postbox, featuring a mermaid.
Is it pensioner paradise? “I think that fits,” says Patricia, 62, who moved six months ago and is reading her book in the sun by the sea.
“We don’t have poor pensioners here. I was living in Eastbourne before and there is a big gap there socially. Here, you don’t see it. It is like a little island,” she says.
For Isabel, retirement to East Preston was possible because of her husband’s pension income. She receives only £500 per month in state pension and £120 from her workplace pension. But he receives £45,000 per year from two of his own pensions, on top of his state pension.
Instead of her own finances, she worries about her children. “I’ve got enough to live on, I’m happy. I’d rather see more money go to young people. I don’t think my daughters will get a state pension and that bothers me. It’s not sustainable,” says Isabel.
She thinks the triple lock, which means that the state pension rises by whichever is higher out of inflation, wage growth or 2.5pc, should be reformed.
“Lots of people down here don’t need it. But you’d better not print that with my name or they’ll kill me.”
East Preston is part of the Conservatives’ core voter base. It is within the Worthing West constituency, which is a Tory safe seat. It is perhaps fitting that the local MP in Britain’s pensioner capital is also the nation’s longest-serving MP, the Father of the House Sir Peter Bottomley.
Sir Peter is a well-known figure and locals speak fondly about his appearances at the local village fair. But the Tories’ “triple lock plus” commitment to raise the income tax personal allowance for people over state pension age – intended to stop more pensioners from having to pay tax – does not seem to be hitting home in East Preston.
The “plus” element of this pledge would add a further £2.4bn to the annual cost of the state pension by the end of the next parliament, according to the IFS.
“It would be better for me, but nothing would make me vote Tory,” says one early retiree.
“Would I vote Conservative? No. Labour? No. I will vote Lib Dem. I have voted Conservative in the past but I didn’t want to leave Europe,” says Isabel.
Labour’s dilemma
The worst is yet to come, but Britain’s state pension burden is already biting. The post-war baby boom was at the end of the 1950s and early 60s, which means this generation is hitting retirement now.
Back in 2003-04, public spending on state pension, pension credit and winter fuel payments made up 4.2pc of national income, according to the IFS. By 2023-24, this had jumped to 5.1pc. According to the OBR, the total cost last year was £142bn.
This bill will rise to 6.4pc of national income by 2050. This figure is despite the fact that the state pension age is due to rise further, to 68, by 2046. This will be worth an extra £32bn in today’s terms, but in reality this cash sum will be far higher when inflation and economic growth is accounted for over the next 26 years, says Jonathan Cribb, head of retirement, savings and ageing at the IFS.
But, like the Conservatives, Labour has made a manifesto commitment to keep the triple lock in place for the next parliament.
“The only thing they could do is early on in the parliament say we have committed to deliver five years of the triple lock, but we are telling you now that when we are in 2029 we will just maintain it as a share of the average wage,” says Sir Steve.
This would be feasible for a new government with a potentially huge majority, giving plenty of notice, he says. “But they are probably going to do some nasty stuff on public spending, do they really want to immediately announce a hit on pensioners?”
State pension reform is politically toxic and something Labour is keen to distance itself from ahead of the general election. “We’re not looking at reform of the state pension,” says a party source.
The Labour manifesto was relatively pensions-lite. In addition to the triple-lock pledge, party leader Sir Keir Starmer said he will reform workplace pensions and has committed to a pensions review, but this will focus on workplace pension investments rather than state pension.
A new Labour government will also have to take on the question of state pension age.
There is little question about whether a new government will go ahead with the planned increase in state pension age from 66 to 67, which will take place between 2026 and 2028. It will save the Treasury around £7bn per year, and that has already been baked into the fiscal forecasts.
But another rise is coming down further down the pipeline. Under the 2007 Pensions Act, the state pension age for men and women is scheduled to increase from 67 to 68 between 2044 and 2046. Chancellor Jeremy Hunt had hoped to bring this forward to the mid 2030s, a move that was recommended in a 2017 report and would save the Treasury billions of pounds.
But the improvements in life expectancy that were expected in the 2017 report, which was based on data from 2014, did not happen. The defence for bringing forward the increase was wholly undermined. Hunt shelved the decision, delaying a review of state pension age to the next parliament.
It is a topic that a new government is likely to investigate, says Nigel Peaple, director of policy at the Pension and Lifetime Savings Association (PLSA) and a former policy fellow in the Department for Work and Pensions. “That’s something that the civil servants always regard as being an option for when a new government comes in.”
But this would be a long-term decision – no government would give less than 10 years’ warning, says Peaple.
In turn, that reduces the incentive for a chancellor to make the move. “The politics are just awful, because you get all of the grief and political flak now, but you don’t get the extra money to spend until 2037,” says Sir Steve.
Locked in
Labour may have made a triple-lock pledge for the coming parliament, but few analysts think the policy can last long-term. “Over decades, the triple lock is expensive and we will have to stop at some point,” says Sir Steve.
Before it got its name, the triple lock began as a Lib Dem 2010 manifesto pledge. It was an idea that the coalition government thought would be both cheap and popular.
“When the Lib Dems negotiated the triple lock with the Conservatives in 2010, the Conservatives went off to the Treasury and said what do you think of this? The Treasury came back and said well it is more or less a free lunch,” says Sir Steve.
It has become a very expensive one. In April 2023, the triple lock meant the Government had to raise state pension by 10.1pc, in line with the level of inflation recorded in the previous September. In April 2024, it had to raise state pension by a further 8.5pc in line with wage growth.
Since it was first introduced, the triple lock means that state pension payments have increased by 60pc (not accounting for inflation) in the 13 years since, well above the 46pc growth in average earnings over the same period, according to the Resolution Foundation.
The policy also means a great unknown for the future public purse. By 2050, it is feasible that the indexation measure could be costing the government an extra £5bn per year in today’s terms, according to the IFS. It is also feasible that it could be costing an extra £40bn.
The IFS has recommended that the state pension should be kept at a target rate as a share of median earnings and then be raised only in line with inflation.
Indexing the state pension at 30pc of median earnings would save the public purse £24bn per year by 2050 compared to if the triple lock is maintained, according to the IFS.
Enough to live on
East Preston may be pensioner paradise, but Britain’s state pension capital also lays bare the UK’s massive inequalities in retirement.
Alan West, 75, is living on the breadline. His home is in neighbouring Littlehampton but he has come to Rustington to use the bank branch. West receives a small workplace pension from his past job as a civil engineer, but this is worth only £170 per month. Without his monthly state pension payments of around £800 per month, he would be destitute.
“I am surviving on less than £1,000 per month,” says West. His rent alone costs £800. “I live on fresh air.”
But for West, keeping the triple lock in place matters even more for the principle than for his finances.
“I want to keep the triple lock. If inflation is higher then I like it, not for my spending power but for getting my money back from the Government. The Government should give us a bigger pension,” he says.
Caroline Abrahams, charity director at Age UK, says: “State pension is still the bedrock of income in retirement for most older people. It is absolutely essential. It would be impossible to envision the UK without it because pensioners just wouldn’t have enough to live on.”
West’s situation reveals the wider problem with retirement savings in the UK. Britain might be spending £124bn a year on state pension – a 20th of national income – but for many people it is still not enough.
The state pension is designed as a baseline income for people to top up with private pensions. But vast numbers of people are not saving enough for retirement. There is a massive difference in how much the state pension matters to different households. Among non-working households with someone aged 66 to 70, state pension makes up 71pc of income for the poorest fifth and 23pc for the wealthiest fifth, according to the IFS.
Could it ever be means-tested? It is almost out of the question, says Cribb. Means-testing the state pension would be a political nightmare and it would bring in dangerous disincentives to save.
“If every bit of income you generate through a private pension will lose you some entitlement to state pension, I think that would probably severely undermine the automatic enrolment system,” says Cribb. Savers could opt out of their workplace pension schemes or reduce their voluntary payments.
In Australia, the state pension is means tested, but this is also accompanied by a system of compulsory pension contributions.
But changing the British system would also mean intergenerational unfairness, says Cribb. “At the moment, we have a system where every generation pays for the state pensions of their parents or grandparents. If you stop that, then you get a generation that pays for their parents’ and their grandparents’ pensions, but don’t get one themselves,” says Cribb.
Care squeeze
East Preston also offers a window on what ageing will look like for the rest of the UK economy, as far more neighbourhoods become older and depend more on pensioner benefits.
Pensioners here are healthier than their counterparts across the country. Just 9.1pc of locals aged over 65 said they were in “bad health” in the 2021 Census, compared to 12.7pc across England and Wales as a whole.
But even here, the figures show that more older people means a more disabled community.
One in every 15 people in East Preston and Rustington East is claiming attendance benefit, a non-means tested payment for people who are on state pension and need help looking after themselves, according to Telegraph analysis of DWP data. This puts East Preston in the top 0.2pc of MSOAs for these benefits claims.
The biggest impact on the public purse will not be only on the state pension but on the associated costs of caring for this ageing population. Government spending on health and social care will rise from 9.5pc to 13.6pc of national income by 2050, according to the IFS. This will be an extra £105bn.
Alongside the private housing estates in East Preston and Rustington, there is a multitude of care homes.
“We are literally on every single corner,” says Marcin Szczepaniak, manager at Rustington Hall care home, which has 62 rooms.
He is on the front line of a major shortfall in social care funding.
“You might imagine that there are now a lot more people living in care homes because there are a lot more people aged over 80. But there aren’t any more, it has just got harder to get places,” says Sir Steve.
Faced with huge demand, local authorities, who have discretion for determining care needs, have increased the thresholds at which people qualify for residential care.
People now move into care homes when they are much older than they used to be, says Szczepaniak.
“In the last six months, we haven’t had anyone younger than 85,” he says. “Ten years ago, people would be coming in their 70s.”
Central government policy changes mean this squeeze will get bigger. Local councils can pay towards the cost of social care if a person has less than £23,250 in savings, but reforms announced in 2021 mean that from October 2025 this cut off will increase to £100,000.
But for many care homes, the amounts the local authority will pay are not enough to make the sums add up, says Szczepaniak.
Rustington Hall charges between £1,350 and £1,600 per week in fees, depending on a resident’s care needs. The maximum the local authority will pay is £820 per week.
“When I used to work in other homes, we used to have 10pc or 15pc of the beds available only for the local authority. Now we would not be able to survive if we did that,” says Szczepaniak.
“Now, where we have referrals from the local authority I say ‘you either have to pay our full price or we won’t accept this, because I need to pay the staff’.”
Perhaps all is not so well in pensioner paradise after all.
