Longer term clarity is needed on where money for state pensions will come from, according to Steven Cameron, pensions director at Aegon.
Chancellor Jeremy Hunt announced in the Budget he would be cutting NI by 2p in April.
The tax cut from 10 per cent to 8 per cent for employed people will save someone earning a £30,000 salary £349 a year, rising to £749 for those earning £50,000.
However, Cameron has called for more clarity on the NI and state pension funding link, highlighting two government documents looking into the NI fund.
He said: “While government decisions on setting of NI contribution rates may now be taken separately from increases to the state pension, there are still official reports on the position of the ‘NI fund’, showing NI contributions received against payments made year on year.”
NI contribution receipts for the year ended March 31 2023 were £129,067,592 compared to £122,925,072 for the same period in 2022.
While the government actuary department’s 2024 up-rating report looking at income and expenditure projections for the NI fund revealed it is projected to peak at £84bn at the end of 2023/24 financial year.
Benefit expenditure is estimated to exceed contribution income in every year of the projection period, resulting in a decreasing fund balance.
Government actuary, Fiona Dunsire, said: “Higher than previously assumed employment and earnings assumptions mean that despite the reduction to national insurance rates, additional financing is not expected to be required over the next five years.
“However, as highlighted in the 2020 Quinquennial review, the fund faces longer term challenges. Most significantly, a projected increase in the number of state pension recipients, relative to the working age population, would increase fund expenditure relative to income. In the absence of additional financing the fund could be exhausted in the next 20 years.”
Cameron added: “The Treasury does have provisions to make special one-off payments from general taxation to prop up the fund.
“So even if NI contributions are not specifically earmarked, with NI already substantially cut and the potential for it to be scrapped, we need longer term clarity from whoever is in power on where the money for state pensions will come from.”
This comes after Hunt already cut NI by 2p in January this year raising concerns alternative funding would be needed for the state pension and triple lock.
Speaking at the time, Cameron said: “Our ageing population, combined with the current triple lock mechanism, means the costs of state pensions are rising sharply.
“Reducing NI contributions - their primary source of funding - adds to the challenge, potentially requiring alternative state pension funding sources from general taxation in future.”
alina.khan@ft.com
