A report from the Government Actuary relating to National Insurance contributions and the benefits these are used for has highlighted that recent changes to National Insurance Contributions and to the State Pension mean outgoings will exceed receipts in each year from 2024/25 till 2027/28.
This will add fuel to the debate around whether the state pension in its current form is affordable.
Steven Cameron, Pensions Director at Aegon, comments:
“The state pensions being paid today are funded from the National Insurance contributions of today’s workers on a ‘pay as you go’ basis. Last year, the Government significantly increased the earnings threshold above which National Insurance contributions are paid. This was good news for take-home pay, but it meant the Government will receive less from National Insurance receipts than it would have, both this year and in future. On the other hand, under the ‘triple lock’, the state pension will be increased by a record 10.1% in April which will cost the Government significantly more, again both next year and in future years.
“The Government Actuary’s latest report shows that in each year from 2024/25 till 2027/28, receipts will be less than expenditure. While these latest figures don’t look beyond 2028, unless changes are made, the state pension looks increasingly unaffordable. While there is a very small fund to cover the shortfalls till 2028, it is declining rapidly and could run out entirely unless the Treasury steps in and pays special grants.
“The Government did honour the state pension triple lock this year, but there is growing concern that granting such generous upratings in future years will simply be unaffordable, without putting growing pressures on today’s already stretched workers. The Government will shortly publish findings of its review into state pension age, and there’s a strong likelihood that on affordability grounds, this will have to increase beyond age 67, earlier than currently planned. These latest Government Actuary figures make changes to state pensions even more likely.”