Barely a week goes by without a story on the UK state pension leading news bulletins and garnering significant column inches in the national press.
This is perhaps unsurprising given how central the state pension is to people’s retirement plans.
While the full new state pension amount of around £11,500 a year (from April 2024) isn’t enough for most people to live on, you’d need a pot worth over £200,000 to buy an equivalent annuity from an insurance company.
As such, the benefit has to be factored into long-term planning conversations, albeit with the knowledge the further away from receiving it a client is, the more difficult it is to figure out exactly what they’ll get or when they’ll get it.
Reasoned debate on any topic can be challenging at the best of times, particularly in the bear pit of social media
Given debate over the future of the state pension will inevitably continue into the next parliament and beyond, ensuring the conversation is based on facts rather than fiction or exaggeration is critical. Sadly, reasoned debate on any topic, particularly one as emotive as the state pension, can be challenging at the best of times, particularly when much of that debate is taking place in the bear pit of social media.
There are two common misconceptions fueling anger over the state pension which need to be tackled.
The first and perhaps most prevalent is the idea the state pension is a ‘right’ for all UK citizens and that, provided you have ‘paid in’ through National Insurance (NI), you should be protected from any change to the rules.
I have seen this claim repeated over and over again, particularly in relation to the long-running dispute between so-called Waspi women and the government.
Failure to communicate this fact has played a part in the huge anger felt by millions of people about increases in the state pension age
Although UK citizens’ entitlement to the state pension is built around the NI system, the state pension is, by law, a benefit. Failure to adequately communicate this fact has played a part in the huge anger felt by millions of people about increases in the state pension age.
With regards to the Waspi issue, arguments around the fairness of state pension age rises and the idea that because you have paid in through NI, you should experience no change in what you receive are often conflated with the recent Ombudsman ruling, which focused specifically on maladministration in communicating the reforms.
The second misconception, linked to the first, is the idea that the short-term financial position of the NI Fund matters in determining state pension payments. I have seen respected financial commentators suggest the fact the fund is currently in ‘surplus’ means either state pension age increases should be scaled-back or higher levels of state pension could be afforded.
The NI Fund is anticipated to plummet in value sharply and be completely exhausted by 2043/44
The NI Fund is a real thing and it is true it receives NI payments and then pays those payments out in benefits, including state pension. At the latest ‘quinquennial review’ of the fund, the government actuary confirmed it has a surplus of over £40bn, with this surplus expected to increase to almost £105bn by 2032/33. However, from this point onwards, the fund is anticipated to plummet in value sharply and be completely exhausted by 2043/44.
In reality, neither the current surplus in the NI Fund nor the expectation it will be exhausted by the mid-2040s will determine the future of the state pension. While there is a notional split in government accounts between NI receipts and other government tax receipts, this is illusory. NI simply forms part of the general tax pot.
If this weren’t the case, the recent government decision to slash NI would imply making drastic cuts to various benefits, including the state pension, in order to make its sums add up. In fact, the state pension will rise by 8.5% on 6 April as a result of the triple lock, with both Labour and the Conservatives expected to recommit to the policy in their election manifestos.
While lowering NI means less income for the Treasury, it should not have a direct knock-on effect to things like pensions and benefits
So, while lowering NI means less income for the Treasury, it should not have a direct knock-on effect to things like pensions and benefits. Of course, it is possible that by reducing the overall tax take, the government has to make savings elsewhere, but these are as likely to fall on other areas of public spending as they are the state pension.
The UK needs to have a genuine, open debate about the future of the state pension to bring at least some certainty into the system. The starting point of that debate must be based on facts, which is why addressing misinformation about the state pension head-on is so important.
Tom Selby is director of public policy at AJ Bell
