There are plenty of people, especially young people, who don’t believe they will get the state pension. We all vaguely recognise a link between national insurance and pensions, so when people hear the Chancellor say he wants to scrap national insurance, they hear he wants to scrap the state pension. Social media is awash with such rumours and it would be sensible for some authoritative figure in Government to make it clear what the link between national insurance and state pensions actually is.

The state pension is a universal benefit earned by people paying national insurance contributions or being credited with paying them over 35 years. If the level of payment decreases, the public should expect the level of benefit to also decrease. This is the kind of Thatcherite economics that Rishi Sunak claims makes him a Thatcherite.

Unless a clear statement is made to the contrary, people will worry. As well as paying for the state pension, national insurance receipts pay for the NHS at a fixed rate. If that rate has been kept constant then the amount going to pay state pensions decreases at an even faster rate, because all the cuts are to the state pension element.

If the national insurance contributions are so decreased that when the Government Actuary (Fiona Dunsire) comes to do her next Quinquennial Review (I think it’s about now), she will have to advise the Government that inflows from NI are not matching outflows to pensioners and the following options will come into play

1. The Government has to reorganise the links between national insurance and state pensions so that some other revenue source pays
2. The Government has to reduce its commitment to the state pension by abandoning the triple lock and increasing state pension age
3. In an extreme circumstance , the Government could consider means testing the state pension.

Option 3 (as option 3 s tend to be) is nuclear as many people believe they have pre-paid for the benefit and are entitled to it. Australia does have a means tested state pension system and I for one don’t think that Aussie rules in this respect.

As I have mentioned before on this blog, a previous Government Actuary made a link between people’s savings and their benefits

If the link to state pensions relates to individual entitlements to the job lot of private pensions mentioned by Trevor Llanwarne in 2014, then we have the basis for a state pension based on topping up private pensions. That is means testing.

Why many people, including me, have difficulty with recent announcements from Government that HMRC/HMT will have access to people’s bank accounts when assessing benefits is that it breeds a kind of familiarity with people’s finances that we should not be giving the state. The pension dashboards will give snooping further impetus.

I am sounding uncommonly like a conspiracy theorist here , but reading what I say, I recognise why I am uncomfortable about statements from Jeremy Hunt in his budget speech implying that national insurance is unfair and a tax on work.

We might as well say auto-enrolment is a tax on work. Paying for the NHS  state pensions and related benefits are  the principal reason to have national insurance. Making income or corporation tax or VAT or some other source of revenue, the source of funding of the state pension , risks losing one of the checks we have in the system, which stops the Treasury controlling what we pay at work and the pensions we get from those payments.

It hands power to the Exchequer and takes power from the Department of Work and Pensions (previously the Department of Social Security.  To the extent that the state pension is earnings related, it is powered by national insurance payments and we should be wary of cuts to national insurance. We should be very wary of any statement that the intention is to abolish national insurance altogether.