National Insurance currently raises £145 Billion annually
The current cost of the state pension is £111 Billion annually
There is a common misconception that pensioners earned their State Pension, in that, as with an occupational pension, their National Insurance contributions and those of their employers, were invested to generate their income in retirement.
That was indeed the original intention when the state pension was conceived in the first decade of the twentieth century, but it was never implemented in that way.
The National Insurance contributions are not invested. Instead, they go into the government revenues with all other taxes to pay for current public expenditure. This expenditure will include pensions as well as defence, the NHS, and every other public expenditure. There is no direct read-across from the National Insurance levied, and the amount of the state pension.
National insurance contributions are necessary to qualify for the State Pension but they do not earn it: The State Pension is a ‘contributory benefit’.
Because our contributions are a percentage of our incomes, we will all make very different contributions, but qualify for the same benefit, a fixed amount of pension.
The tax system is complicated. There are two taxes levied on income from employment: Income Tax and National Insurance.
Why have two?
Why not simplify the tax system and just combine them into one?
These are questions that have occurred to several Chancellors of the Exchequer, including the current Chancellor, Jeremy Hunt, who, in his last Budget, expressed his ‘aspiration’ that , when it becomes possible, to get rid of National Insurance altogether.
This will be a long way off because both Income Tax and National Insurance have intricate complications, making it difficult to combine them without creating a significant number of losers (including pensioners who don’t pay National Insurance).
The author of the current scam is a political party which is seeking to terrify voters with the false assertion that the aspiration to do away with National Insurance is, in effect, a threat to abolish the State Pension.
This is nonsense. There is no direct link between revenue from National Insurance and the State Pension, and here is the proof: we’ve cut National Insurance contributions by 2%, but the state pension has just increased by 8.5%, another £900, the highest increase for 30 years.