Will the state pension exist for a 42 year old?

Pat38493

hugheskevi said:

Linton said:

Andy_L said:

Linton said:

Andy_L said:

MetaPhysical said:

Brenster said:

I am 43, and i dont see how they could just stop it.  As has happened over the past 20 years, the age at which you get it may increase, however thier would be riots if they just pulled it, and if they did scrap it, we would all be owed thousands in a rebate as we have been paying into the pot via NI since starting work. 
Also to make it means tested would just be another kick in the teeth for those who have planned and made sacrifises throughout thier working life, so this would be unfair also. 
We do not have a crystal ball, but i personally feel i will get it age 70/71, it rises to 68 soon, and i can see it rising by 1 year per decade on average to keep up with extended life expectancy.

There is no "pot" and there never has been.  We pay NI and taxes and they disappear to people who are currently retired, amongst other things.  We do have a National Insurance record where it is stated quite clearly we are entitled to a pension at SPA with the maximum years of contributions (like I have for example) but that it is subject to change.  It does not come out of our personal "pot" as such and no money or provision has been explicitly ring-fenced for you or me.  What would happen to millions who had bought more years of NI to cover holes if the government then decided to means test the SP after all?  Do they pay us all back? It would wreck the plans of people who have been saving enough to add to the SP anchor to give them a reasonable income, saving with great sacrifice elsewhere in their lives.  To pull the carpet on that now would wreck the lives of millions of people, 99% of everyone over 45 I'd venture to say.  It would be an unholy mess of historic proportions to pull the rug on this one.  Never say never though, politicians are nuts, all of them are.

If bankers operated like this they would be prosecuted.  "Yes we know you have been contributing Mr MetaPhysical all these years but, actually, the money in your retirement plan is not your money, it's not ring fenced for you"

"The National Insurance Fund (NIF) holds National Insurance Contributions (NICs), paid by employees, employers, and the self-employed. Voluntary contributions are also paid into the Fund. Receipts paid into the NIF are kept separate from all other revenue raised by national taxes and are used to pay social security benefits such as contributory benefits and the State Pension."

https://www.gov.uk/government/publications/national-insurance-fund-accounts/great-britain-national-insurance-fund-account-for-the-year-ended-31-march-2023

That does not mean it's a large pot with £multi-trilions waiting for your retirement.  AIUI the NIF is more like a current account than a savings account, the money going in balances the money paid out.  In practive it's an accounting fiction.

In 2022 it had a closing balance of  £56,874,726,000
In 2023 it had a closing balance of £72,486,113,000

looks like a large pot to me

How/where do you think it is held?  1500 tons of gold? 

This is a very important point. The National Insurance Fund Accounts say:

Income from NIF Investment Account

In 2022 to 2023, the NIF Investment Account (NIFIA) was almost entirely invested in the Debt Management Account

The Debt Management Office states:

The key objective of the DMADF (Debt Management Account Deposit Facility) is to provide users with a flexible and secure facility to supplement their existing range of investment options while saving interest costs for central government.

So almost all of the National Insurance Fund pot goes into an account at the Debt Management Office where it is used to reduce the amount of government borrowing required through gilt issuance.

Therefore to use the National Insurance Fund for anything, government borrowing would have to rise to pay out the National Insurance funds. If the Fund didn't exist at all, any new expenditure would have to be funded by additional government borrowing - which is the same outcome as if the Fund were to be used to fund expenditure.

So the Fund only exists in accounting terms - for all practical purposes it doesn't exist and certainly isn't a ringfenced lump of invested assets which could be called upon if needed without any impact on government financing.

Seems like I was actually right in the first place then that it's just an accounting number in the end.

BlackKnightMonty

Linton said:

BlackKnightMonty said:

I’m 46. My suspicion is that it will be means tested.

There’s just not enough money being raised through taxation to afford it.

Less than half of all UK households are net contributors to tax after benefits/services are considered.
https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/theeffectsoftaxesandbenefitsonhouseholdincome/financialyearending2022

As the demographics shift to more retirees and less workers, the tax base will reduce further.

What needs to happen is a focus on raising wages after years of stagnation. That is what brings a sustainable future.

I think a hard look at the £50k and £100k marginals would help smooth the earnings base. It’s hard enough already to argue for a +£100k salary. Which might sound a lot; but with 60% marginal income tax actually isn’t!

C) Most people earn less than what someone earning £100+K would be living on if 60% tax applied to all their gross income.

This is why the SP will become means tested. Because the majority who earn much less than £100k are quite happy to remove SP from those who do.

So 28 years of NIC so far and that will be for naught.

Albermarle

BlackKnightMonty said:

Linton said:

BlackKnightMonty said:

I’m 46. My suspicion is that it will be means tested.

There’s just not enough money being raised through taxation to afford it.

Less than half of all UK households are net contributors to tax after benefits/services are considered.
https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/theeffectsoftaxesandbenefitsonhouseholdincome/financialyearending2022

As the demographics shift to more retirees and less workers, the tax base will reduce further.

What needs to happen is a focus on raising wages after years of stagnation. That is what brings a sustainable future.

I think a hard look at the £50k and £100k marginals would help smooth the earnings base. It’s hard enough already to argue for a +£100k salary. Which might sound a lot; but with 60% marginal income tax actually isn’t!

C) Most people earn less than what someone earning £100+K would be living on if 60% tax applied to all their gross income.

This is why the SP will become means tested. Because the majority who earn much less than £100k are quite happy to remove SP from those who do.

So 28 years of NIC so far and that will be for naught.

NIC is just another tax, it just happens due to history that your SP entitlement is linked to your qualifying NI years.  Many people get full SP when they have paid no or little NI, as they get qualifying years by other means, such as being a carer or parent of young children. 
So the link between NI payments and the state pension is at best indirect.

Universidad

Albermarle said:

NIC is just another tax, it just happens due to history that your SP entitlement is linked to your qualifying NI years.  Many people get full SP when they have paid no or little NI, as they get qualifying years by other means, such as being a carer or parent of young children. 
So the link between NI payments and the state pension is at best indirect.

So why don't we charge NICs to people over state pension age?

ZeroSum

The problem with scrapping or means testing SP is that is disincentives paying into a works pension. More people will just take the view that many less well off currently do, that is 'no point, get it spent, enjoy it while you can, let the state look after you' which will likely cost the taxpayer more money.

You could possibly have some means testing, but the bar needs to be set quite high. Something similar to child benefit in that you loose £1 of SP for every £2 you earn private pension over £50k. But then this could be avoided by putting money into ISA's instead. But then they won't get the benefit of the higher rate tax deduction so the government clicks a bit there

Also worth pointing out that currently life expectancy isnt rising. Its decreased for the last 3 years. So any negative changes to the state pension would be entirely political & not financial.

Linton

BlackKnightMonty said:

Linton said:

BlackKnightMonty said:

I’m 46. My suspicion is that it will be means tested.

There’s just not enough money being raised through taxation to afford it.

Less than half of all UK households are net contributors to tax after benefits/services are considered.
https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/theeffectsoftaxesandbenefitsonhouseholdincome/financialyearending2022

As the demographics shift to more retirees and less workers, the tax base will reduce further.

What needs to happen is a focus on raising wages after years of stagnation. That is what brings a sustainable future.

I think a hard look at the £50k and £100k marginals would help smooth the earnings base. It’s hard enough already to argue for a +£100k salary. Which might sound a lot; but with 60% marginal income tax actually isn’t!

C) Most people earn less than what someone earning £100+K would be living on if 60% tax applied to all their gross income.

This is why the SP will become means tested. Because the majority who earn much less than £100k are quite happy to remove SP from those who do.

So 28 years of NIC so far and that will be for naught.

Why would those who earn less than £100k want to make SP means tested?  It won’t give them any benefit. 

Stopping SP for those earning more than £100k would provide comparatively little savings.

SP is perfectly affordable for many decades with small changes such as stopping the triple lock, adding a small number of years to SPA, richer retirees paying NI etc etc

if SP is means tested it would surely be based on income at SP age, not income whilst working.

The government will have great problems simply removing it in one go. There would need to be significant notice for people to make other arrangements.  They are unlikely to get away with simply removing accrued benefits.

Finally, think of the admin required to means test the great majority of the over 68 population.

I think you are worrying completely unnecessarily.

booneruk

Universidad said:

Albermarle said:

NIC is just another tax, it just happens due to history that your SP entitlement is linked to your qualifying NI years.  Many people get full SP when they have paid no or little NI, as they get qualifying years by other means, such as being a carer or parent of young children. 
So the link between NI payments and the state pension is at best indirect.

So why don't we charge NICs to people over state pension age?

A quirk of the system. NIC is certainly just another tax, although paying it builds your entitlement to a number of potential benefits, one of which is the SP.

BlackKnightMonty

Linton said:

BlackKnightMonty said:

Linton said:

BlackKnightMonty said:

I’m 46. My suspicion is that it will be means tested.

There’s just not enough money being raised through taxation to afford it.

Less than half of all UK households are net contributors to tax after benefits/services are considered.
https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/theeffectsoftaxesandbenefitsonhouseholdincome/financialyearending2022

As the demographics shift to more retirees and less workers, the tax base will reduce further.

What needs to happen is a focus on raising wages after years of stagnation. That is what brings a sustainable future.

I think a hard look at the £50k and £100k marginals would help smooth the earnings base. It’s hard enough already to argue for a +£100k salary. Which might sound a lot; but with 60% marginal income tax actually isn’t!

C) Most people earn less than what someone earning £100+K would be living on if 60% tax applied to all their gross income.

This is why the SP will become means tested. Because the majority who earn much less than £100k are quite happy to remove SP from those who do.

So 28 years of NIC so far and that will be for naught.

Why would those who earn less than £100k want to make SP means tested?  It won’t give them any benefit. 

Stopping SP for those earning more than £100k would provide comparatively little savings.

SP is perfectly affordable for many decades with small changes such as stopping the triple lock, adding a small number of years to SPA, richer retirees paying NI etc etc

if SP is means tested it would surely be based on income at SP age, not income whilst working.

The government will have great problems simply removing it in one go. There would need to be significant notice for people to make other arrangements.  They are unlikely to get away with simply removing accrued benefits.

Finally, think of the admin required to means test the great majority of the over 68 population.

I think you are worrying completely unnecessarily.

Just a random number.

I have no idea what a SP means threshold calculation might look like.

What I do know is that there are more low earners with minimal NIC who would be happy to take SP from anyone ‘wealrhy’, than there are ‘wealthy’ folk who might be against that level of redistribution.

hugheskevi

It is interesting to look at the OBR's long-term forecasts of revenue and expenditure.

The tax take is forecast to remain very steady at about 40% of GDP.

Expenditure is forecast to remain at around 40% of GDP until about 2040, then steadily increase to around 50% by 2070. The main cost driver is health (5 percentage points) followed by State Pensions (3 percentage points).

The only expenditure categories with meaningful decreases in expenditure as a share of GDP are education and public service pensions.

It will be interesting to see how this is responded to - tax increases are unpopular, and the usual categories put forward for unsustainable spending - such as public service pensions - are far too small (and falling) to make any meaningful difference. Any policies such as reducing healthcare or state pensions expenditure are extremely unpopular with voters, but then so are tax increases.

I think it is quite hard to anticipate what might happen, but given the short-term nature of politics and that the really pressing issues don't take effect until around 2040, there has to be a decent chance of not a great deal happening for the next decade given the unpopular decisions it would entail.

Universidad

booneruk said:

Universidad said:

Albermarle said:

NIC is just another tax, it just happens due to history that your SP entitlement is linked to your qualifying NI years.  Many people get full SP when they have paid no or little NI, as they get qualifying years by other means, such as being a carer or parent of young children. 
So the link between NI payments and the state pension is at best indirect.

So why don't we charge NICs to people over state pension age?

A quirk of the system. NIC is certainly just another tax, although paying it builds your entitlement to a number of potential benefits, one of which is the SP.

So to put this in context: 

• if you don't pay National Insurance, or gain equivalent NI credits, you're not entitled to a state pension. 
• Every full year of National Insurance contributions moves you closer to a full state pension.
• You can voluntarily make additional contributions to fill in missing years, which increases your state pension entitlement proportionately.
• When you reach state pension age, you no longer pay National Insurance.

BUT

• National Insurance is "just another tax" that has nothing to do with the state pension.

Honestly, that doesn't wash for me. 

Even the OBR says:

"NIC receipts are, unlike most taxes, paid into the National Insurance Fund and are notionally used to pay for the state pension ... in some presentations of receipts, NICs are counted as ‘social contributions’ rather than taxes."

Yes, we've covered that the money doesn't sit there ring-fenced (hence the use of "notionally"), but governments don't have to do that. My public sector pension funds aren't sitting anywhere ring-fenced either, but nobody is going to tell me I wasn't explicitly buying a pension entitlement with the contributions.