A recent report from the Government Actuary’s Department suggested that National Insurance contributions would need to rise significantly to cover the increased cost of state pensions. This would be unfair – in essence, it would mean taxing a generation that is destined to retire later with less to pay the pensions of a generation that retired sooner with more. Below is a copy of my letter to the Financial Times on this topic, published on 11th January 2018.
Dear Sir, It is reported that national insurance contributions will need to rise by billions of pounds to sustain the state pension, under projections from the government actuary (“NI ‘will need to rise’ to pay for state pension”, January 9).
This is inter-generationally unfair. The young are far less likely than the retired to benefit from a defined benefit pension. The NI contributions they pay are securing less state pension than in the past, particularly after introduction of the new state pension, and from a higher age.
The young are also less likely to have a chance to own their own home, and are more likely to have debt, mainly of the student variety. This is essentially another tax anyway, which makes increasing NI contributions even less equitable. A fairer approach is to introduce an element of means testing for pensioners in receipt of high incomes. Without this, it is hard to see how the state pension can be sustainable in the long run.
Means testing does have challenges, but there needs to be a change from the current approach, which involves taxing a generation that is already facing less pension later in order to pay the benefits of a generation that retired sooner with more.
Paul Sweeting
Professor of Actuarial Science,
University of Kent, Canterbury, UK
The original letter is here.
