State pension alert: Government urged to clarify how National Insurance funds payments | Personal Finance | Finance


The Government has been urged to clarify how the state pension is funded amid concerns National Insurance may not be enough to cover the payments.

Experts at wealth group Aegon have queried how the system works, urging the Government to “be clear about how this is going to operate”.

Pensions director Steven Cameron told : “If there’s not enough coming in, somebody is going to have to make up the difference.

“It might be that the Treasury has to keep giving more and more grants. At the moment, it’s an unusual event for the Treasury to have to make that special payment.

“It could become the norm, it could become every year the Treasury needs to pay money in.”

He has called for ministers to clarify how the ‘National Insurance Fund’ works, which is referred to in this Government accounting document.

The document states: “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.” asked the Treasury for a response to these concerns. We were directed to comments made by the Chancellor Jeremy Hunt this past week.

He told the Treasury Committee in Parliament: “The amount of money raised by National Insurance does not determine the amount of money going into the state pension or the NHS.

“It has not done for very many decades. The evidence for that is the Budget because in the Budget we announced a £6billion increase in funding for the NHS and a £900 increase in the state pension, which is going up by 8.5 percent — around three times the rate of inflation.”

Mike Ambery, retirement savings director at Standard Life, part of Phoenix Group, previously: “The state pension is unfunded and today’s taxpayers are paying for today’s retirees.

“While the Government is committed to the state pension, the money will be found to pay it.”

The increase in the state pension from April will increase the full new state pension from £203.85 a week to £221.20 a week while the full basic state pension is going up from £156.20 a week to £169.50 a week.

A person typically has to pay 30 years of NI contributions to get the full basic amount and 35 years of contributions to get the full new state pension.

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