Why Labor's warning to pensioners is 'pure panic'

Pensioners vote. They turn up in large numbers at general elections, so politicians are taking notice.

The power of pensioners at the ballot box has sparked a bitter battle for gray votes between the Conservatives and Labor.

< p>The party's weekend Sir Keir Starmer has taken the campaign to a new level with full-page newspaper advertisements accusing the Prime Minister of jeopardizing the state pension.

“Now Rishi Sunak, who has broken the pension triple lock, wants to ditch the national insurance contributions that help fund the state pension,” said the announcement, which was signed by Liz Kendall, Labour's shadow work and pensions secretary.

< p > “It will cost £46 billion a year, but he doesn't say where that money will come from. This is a more dangerous unfunded financial black hole than Liz Truss's mini-budget and will put your pension at real risk.»

This was a clear attempt by the opposition to separate the Tory party from the pensioners. a group that has traditionally voted for them in large numbers.

The report ignored a significant increase in state pensions proposed by the government (payouts rose by a further 8.5% last month alone), while stoking fears that the Conservatives would break model for financing pension benefits.

played on the misconception that each worker's National Insurance (NI) contributions ultimately top up their State Pension upon retirement.

That's not true: National Insurance is a tax like any other that goes into the Treasury. It is used to finance government spending, including government pensions for today's retirees, as well as many other forms of spending.

In reality, cutting NI contributions has no more impact on the government's ability to pay the state pension than cutting any other tax.

Rose Altmann, a former pensions secretary, called the advert «pure bullying» by Labour.

p>“Many people think that there is a fund that pays them their state pension. No. It's not like a private pension because there is no fund from which it comes, says a fellow Conservative.

“It all comes from taxpayers. This is a government benefit, not an investment pension, which pays you money from a set up fund.

“When you pay NI, you pay today's pensioners, not your own.”

p>

The State Pension costs far more money than it brings in to National Insurance employees, and so far it has been protected and increased no matter what.

This can be seen from the events of this year. Jeremy Hunt, the chancellor, cut staff's National Insurance contributions by two percentage points in January and a further two in April, but the state pension nevertheless rose last month.

Triple lock — promise to increase pensions The state pension at the highest rate of inflation, average earnings or 2.5% per year, ensured that payments to pensioners grew noticeably faster than workers' wages.

However, the connection to National Insurance remains in the public consciousness due to an administrative quirk. Each person accumulates entitlement to the State Pension over time, which is calculated over years of NI contributions.

However, entitlement is not limited to National Insurance payments: parents receiving child benefit accrue benefits even if they are not working, for example, as do participants in certain training courses, carers and a number of other people with low or no income.

Another example of how NI and the State Pension are not linked is the fact that workers continue to pay tax even after they have reached full entitlement.

People can claim the Full State Pension as soon as they have paid NI for 35 years, but workers under pension age continue to pay tax even if it no longer increases their pension entitlement.

Steve Webb, a former pensions minister in the coalition government who now works for consultancy LCP, says: “It's all nonsense. If the income of NI, including the employer's NI, is found to be insufficient, they can (and have repeatedly done so) contribute to the general tax account.»

Altmann notes that NI funds are also used for other benefits.

p>Altmann notes that NI funds are also used for other benefits.

Altmann notes that NI funds are also used for other benefits.

p>

“National Insurance covers the NHS, sick pay, unemployment benefits — it's part of the welfare state.”

Of course, there are reasons to fear that the state pension could become unaffordable. As the population ages and the cost of health and social care rises, increasing the state pension faster than workers' wages will certainly put a strain on public finances.

Long-term forecasts from the Office for Budget Responsibility (OBR) show spending on the state pension and other pension benefits such as housing support and winter fuel payments will rise from just under 6% of GDP last year to more than 10% by the 2070s.

Adam Smith Institute analysts estimate that triple blocking will become unsustainable in the next 10-20 years.

< p> Labor is right to note that tax cuts are difficult to achieve at a time of massive borrowing.

The Treasury is still forecast to borrow more than £87 billion this financial year, with the deficit expected to narrow only gradually. to just under £40 billion in 2028-29.

Current forecasts show the government will only just meet its target of reducing the share of public debt as a share of GDP in five years. And even at the end of the period, debt will still be at a painfully high level of 94% of GDP.

Eliminating National Insurance contributions for employees risks making it more difficult to balance the books and means more decisions will need to be made on this issue. limiting government spending.

However, this does not threaten pensions specifically.

Despite the cuts, taxes are on track to rise to their highest share of GDP since 1948, according to the Office . for budgetary responsibility.

The government is considering the possibility of releasing pensioners from part of this responsibility. Sunak has raised the issue of giving pensioners higher tax-free benefits than workers, to ensure that those receiving only the full state pension, with no private income, end up paying no income tax.

Sunak's latest Pledge to protect pensioners' incomes with 'triple lock plus' suggests extreme political determination to maintain old age benefit — despite Labour's attack adverts.