Pension triple lock in Labour's sights

 Labour's manifesto promise, not to break the state pension triple lock, looks set to be broken.

The state pension  is expected to cost £145.6 BILLION in 2025-2026.

Tax revenue in 24/25 was £839.6 BILLION (approx 33% of the £2,851B GDP).  State spending is £1,278 BILLION (approx 45% of GDP). So there's a budget deficit (ie spending more than the government gets) of £443.35 BILLION each year.

In other words the credit card is being hit for overspending to roughly 3x as much as the state pension every year....Every year adding £443 BILLION to the debt pile. Hang on - Rachel is running things - the debt's actually going to be a lot more than £443 BILLION next year....

Successive governments have allowed government debt to balloon to £2.81 TRILLION (about the size of the GDP).

The interest rate on the government credit card is current 4.5%pa so the cost of servicing this debt is £126.45 BILLION per year - a big chunk of that is handed over to the Chinese government as they hold a lot of UK government debt.

So the cost of servicing the debt is not far off what we pay our old age pensioners.

So back to the state pension. 

The state pension is not a benefit although the government likes to position it as a benefit.  It's a giant Ponzi scheme that makes Bernard Maddoff looks like an amateur.  During your working life you pay in your National Insurance which goes towards your state pension.  If you work more than 10 years you are eligible to receive some state pension. If you worked for 35 years you will qualify for the full state pension. Work less and the pension will be pro-rata.

The problem is the government hasnt invested your contributions or even ring fenced them. It simply pays the state pension out of tax receipts. If tax receipts fall (which they are) then the cash strapped government needs to either find savings or hit credit card.  Rachel has already maxed out the credit card so the government is looking to cut costs.  The Chinese want their interest payments - they are more important than some frail pensioner.

Now Jeremy Hunt, the last conserative chancellor reduced employee national insurance from 12% to 8%.  Employer contributions was 13.8% so before he did this, 25.8% of your salary was going into your state pension. After the change 21.8% of your salary was going into your state pension.  This meant your wage packet went up because you weren't paying so much into your state pension.

Along came Rachel and she had promised to not increase national insurance for people so she went after companies.  She increased the amount of national insurance the company pays (ie a jobs tax) from 13.8% to 15%.  So your packet hasnt changed but the cost of employing you went up 1.2%. And to make matters worse, she lowered the threshold that employers had to start paying this to £5,000 from £12,570.   So employers had to pay an additional £1,135.50 in employer national insurance for every single employee every year. 

Now in theory this money is going into your state pension but if the triple lock is removed, over time the liability of the state pension will reduce and the government can pocket this money rather than pay you want you are owed.

Either way Rachel and Jeremy have screwed things up.  The national insurance contributions firstly are not ring fenced and secondly people are not paying in enough to cover the increasing cost.

Looking at my own national insurance contributions, I've paid in about £180,000 in national insurance in my working life.  So looking at annuity rates for age 70 (pretty close to my state retirement age) then based on the cash only contributions I should be able to buy a pension of £15,514 per year however this is not triple locked. An index linked pension would be £13,251 per year.  The state pension is currently £11,973 per year so for my particular case I would be better off having the cash back and buying my own pension.  

However the government are playing the statistics game so high earners will pay significantly more national insurance and get very little in return for their contributions in order that some earning moderately little can get the same level of state pension.  

So let's look at some on minimum wage who stays at their level for their working life. They make contributions from age 21 to age 70.  We ignore inflation and assume they pay 8% and the employer pays 15%.  So the sum total of contributions over their lifetime will be £204,283 (£51,307 they pay and their employer will pay £152,976).  So on the private annuity market they could buy a inflation linked pension of £15,018.

Hang on that's someone on minimum wage could buy a pension of £15,018 yet the state pension is only £11,973....

Does the government think we are stupid?

The real problem is the size of the state is too big.  We cannot afford to spend £443 BILLION each year more than are received in tax receipts.   The state pension is in the noise in overall spending.  

The reason the state pension is being targeted is 

1. So what if pensioners go on strike as result of the cuts ?

2.  What difference does it make if pensioners are angry?  Are they going to riot?