Sorry Ben , you won’t have a million pound pension, you’ll have a £1m pot and a £40k pension (with proper inflation)
You might get a level annuity at £65,000 (or more if you hung on) but would you get protection for your wife if you died and what if there was inflation?
As for taxation, what makes you think that you needn’t pay taxes as a pensioner
And whatever I do amass will be taxed mercilessly. My pension income, while modest, will probably attract the higher rate of income tax thanks to the deep freeze on thresholds; council tax will continue to bite harder every year; and any leftovers face an inheritance tax charge for my family of 40 per cent.
Pensioners do not pay national insurance on their pension, this despite their being the ones who are putting most strain on the NHS (where some of the NI goes). Pensioners also get the state pension , that is massively improved with the triple lock and there are a host of savings that pensioners get on almost everything we do.
All that Ben’s article does is show us the difference in the wealth of Times readers and the rest.
Analysis of government data in 2022 showed that one in four pensioners lived in households with £1 million or more in assets. By the time I retire in the 2050s, I suspect this figure will be one in two.
The reality is that our properties make the majority of our assets and they are likely to provide equity release to increasing numbers from pensioner poverty. This is the reality of pensions when it’s funded by auto-enrolment set at basic levels.
But to scare people into thinking that they need to have a pension pot of £1m to have a reasonable £40k inflation-proofed retirement wage is absurd. Putting aside the possibility that the reader might be in a public pension (or one of the increasingly rare private one), there are possibilities going forward for those with all kinds of saving levels to get to a pension target more easily.
I am fed up with the Times and its relentless bleating about rich people’s opportunity to exploit tax-breaks. I am fed up with wealth as the target of the newspaper’s readership.
It is time for us to think of pensions as social insurance for the poor and a way for the middle earners to get to comfort. The rich have a number of ways to stay rich and pensions will be an increasingly small part of their wealth planning. Pensions are not valued by the value of the pot, pots won’t be displayed on dashboards and increasingly they won’t be paid out with the flexibility that freedom has granted.
You will be able to opt-out of the pension system but you will have to pay the price in terms of taxation , whichever option you choose.
This kind of irresponsible reporting undermines the hard work of large employers, unions and those who are committed to making collective pensions work for everyone. Most of all the Government has determined to make pensions as fair for those on low income as those with a million pounds in their pot.
“… the NHS (where most of NI goes).”
No, most of the National Insurance fund and collections do not go to the NHS.
The vast majority of money raised from National Insurance contributions (NICs) goes into the National Insurance Fund to pay for social security benefits, with the State Pension being the largest single item.
commonslibrary.parliament.uk/research-briefings/sn04517/
It also funds benefits like the new-style Jobseeker’s Allowance, Employment and Support Allowance, and Maternity Allowance.
A portion of National Insurance receipts is allocated to the NHS before the rest enters the fund, but this only covers a minority of the total health budget with the rest funded through general taxation.
Money is fungible. We didn’t hypothecate taxes in Britain. So what you say is arbitrary. You could equally well say that NI funds defence, schools, university students, … It’s all just money. The “National Insurance Fund” isn’t a fund, it’s an accounting convention or, if you prefer, it’s a fraud.
The National Insurance Fund is a statutory fund.
Contributions are credited to it and certain contributory benefits are charged to it. The NIF has its own accounts, and its balance is an identifiable liability/resource within the government’s public finances.
There is also a financial consequence to the NIF having a surplus or deficit: it can hold investments in government securities, and the NIF receives interest on those investments.
If the NIF were merely a fictional memorandum account with no financial consequences whatsoever, interest credited to it would indeed be largely cosmetic.
But if the NIF holds government securities and receives interest, then its balance has some financial reality.
I agree, however, that the precise mechanics are still circular from the perspective of the consolidated public sector: one part of government owes another part, but that doesn’t make the NIF fraudulent.
A maintained buffer reserve equivalent to at least two months’ expenditure isn’t, however, evidence that NI contributions are literally sitting in a bank account waiting to pay pensions.
I have used this, for example, to point out that WASPI compensation, estimated at up to £10 billion, was well within the NIF’s excess over budget, and got nowhere.
The Government Actuary is required by legislation to review the long term position of the NIF at least every five years. His/her report includes a projection of future National Insurance contribution receipts and benefit expenditure from the NIF, over the period 2020-21 to 2085-86, to highlight the factors likely to affect the future development of the NIF.
GAD recommends that the NIF maintain a minimum working balance of at least 16.7% of projected annual benefit expenditure, which equates mathematically to exactly two months (or one-sixth) of annual spending.
The position of the NIF relative to this target at the moment shows a significant safety margin. For the 2025 fiscal period, the 16.7% minimum working balance requirement was estimated at £24.2 billion. The NIF closed with an actual balance of £79.3 billion.
This means the actual fund balance is more than three times larger than the required HM Treasury minimum target.
It demonstrates that the NIF isn’t simply an entirely fictional number invented after the event. There is a deliberate HM Treasury liquidity/financing policy associated with the NIF.
That makes “accounting convention” a much better description than “fraud”.
NI creates a political narrative of earned entitlement that is not equivalent to individual funded saving.
I did not say “I paid National Insurance for 40 years (46 years, actually), therefore I have earned a State Pension.”
Because I agree that it does not mean my 46 years of contributions have accumulated into an investment pot sufficient to finance my state pension.
The state pension is fundamentally a pay-as-you-go social insurance system. Today’s receipts and other government resources finance today’s expenditure, with the NIF providing the statutory framework around contributory benefits.
And that is precisely why you saying “NI funds defence, schools, universities…” isn’t entirely frivolous. At the consolidated government level, all taxation and government borrowing interact to finance the government’s expenditure.
But “you could equally well say NI funds defence” needs qualification.
There’s an important asymmetry.
I could say that ultimately NI receipts contribute to the government’s overall fiscal capacity, and therefore indirectly support everything government does.
But you cannot conclude from that that NI has no earmarking whatsoever.
Parliament has established a statutory relationship between NI contributions, the NIF and contributory benefits.
Cash-flow level: fungible, we agree.
Consolidated public-sector level: fungible, we agree.
Legal/accounting level: not fungible in quite the same sense, so we disagree.
An individual’s “personal pension pot” level: absolutely not a funded pot, we agree.
I’d rewrite your argument rather than accept its final sentence. Money is fungible, so it is misleading to describe NI contributions as though they are placed in individual pension pots or physically segregated to pay particular benefits. But I didn’t say that.
At the level of the consolidated public finances, NI receipts are part of the government’s overall financial resources. We agree.
But the NIF is nevertheless a real statutory accounting and financing mechanism, with defined receipts, expenditures, assets and interest.
Calling it an ‘accounting convention’ is defensible. I used to be a bean counter in a former life. But calling it a ‘fraud’ confuses fungibility with non-existence.
And there’s an especially interesting implication for the “I paid my NI, therefore the state owes me a pension” argument: the entitlement comes from the statutory social insurance rules, not from ownership of money accumulated in the NIF.
That to me is a much stronger critique of your comment than calling the NIF a fraud.
http://www.gov.uk/government/publications/social-security-abroad-ni38/guidance-on-social-security-abroad-ni38
And your £25K pension will buy 4 Mars Bars which is 60% better than something yet to be defined. It can, of course, go up or it could go down. Don’t you wish you had given some thought to maximising your individual pot ? Basically if you fail to plan then you plant to fail
I got the sum wrong – a £1m fund following the 4% rule gives £40k.
Pingback: “Dearie me”; is the national insurance fund -“a fund”- an “accounting convention” or a fraud? | AgeWage: Making your money work as hard as you do