Budget 2021: Covid deaths set to cut state pension costs

The amount the government has to spend on state pensions will fall by £1.5bn by 2022, partly because of over-65s dying of Covid, forecasts suggest.

The government will also receive an extra £0.9bn from inheritance tax, partly due to Covid-related deaths.

The figures have been published by the Office for Budget Responsibility (OBR) - the government's fiscal watchdog.

It said it had "revised up our assumption for excess deaths this year and next relative to November".

More than 144,000 deaths involving Covid-19 have occurred in the UK since the start of the pandemic, figures published by the UK's statistics agencies show.

The majority of coronavirus deaths have been among people aged over 65, many of whom will have been receiving the state pension.

The OBR estimates spending on the state pension will fall by £600m in 2020-21 and £900m in 2021-22 compared with forecasts made before the pandemic.

The watchdog said the forecast for lower state pension spending was partly because of the weaker outlook for average earnings growth, which lowers the effect of the yearly triple lock uprating.

But it added that excess deaths due to the pandemic have also reduced the number of people receiving pensions.

"With virus-related deaths rising sharply again in recent months, we have revised up the number of excess pensioner-age deaths in 2020-21 from 90,000 in our November forecast to around 100,000 in this one," the OBR said in its Economic And Fiscal Outlook, which is published alongside the Budget.

It has increased its forecast because: "Higher virus-related deaths in the current wave of the virus have outweighed the effect of lockdown reducing deaths from other causes, particularly from influenza and other respiratory diseases".

Meanwhile the Treasury predicted that inheritance tax receipts will increase from £5.1bn in 2019-20 to £6bn in 2021-22, before falling to £5.8bn the following year.

The rise in inheritance tax receipts is partly due to the freeze of inheritance tax thresholds until April 2026 announced in the Budget and the growth in the value of estates, but higher Covid-19 deaths will also contribute, the OBR said.