Millions assume they’re ‘entitled’ to the state pension. Here’s why they’re wrong | Personal Finance | Finance

For years, Express readers have reacted with fury to claims that the state pension is a benefit. They believe it is an entitlement, because they have made contributions towards it for decades, via their National Insurance contributions. Newsflash: they’re wrong.

It gives me no pleasure to write that. If the state pension had been done properly, it would be an entitlement.

We would all have an absolute right to claim it, provided we had made sufficient NI payments during our working lifetime.

Unfortunately, it wasn’t done properly. The state pension is based on a lie, and many of us continue to swallow it.

This leaves us all in a much more precarious position. Benefits are something given. They can also be taken away.

In practice, that isn’t going to happen. Pensioners would starve. But the definition does give the government some leeway over what happens to the state pension next.

Here’s a pretty good definition of what the state pension is: “The state pension is a universal, non-means tested benefit available to all, so long as they have made the requisite NI contributions or credits.”

Benefit. Not right. Not entitlement. Benefit.

Yet the myth persists that the state pension is a benefit, with Express reader newresistance2023 taking issue with an article on our site today saying: “DE….the State Pension is NOT a Benefit…why can’t you get it right?”

Sadly, we did get it right.

Don’t believe me?

It’s the Government that decides these things and in 2016 it made its position brutally clear. “The State Pension is described in legislation as a ‘benefit’ in order to root it within the existing social security framework as a statutory scheme paid out of monies in the NationaI Insurance Fund.”

That was in response to a petition entitled: “Stop UK Government and Departments from labelling “State Pension” as benefits!”

It argued that as the state pension has usually been contributed to over many years, it seems wrong to title it as a “benefit”.

The petition failed.

Older people who take pride in never have any claimed state benefits during their working lifetime understandably don’t like the idea of being given one when they retire.

I totally get that.

Especially since most will have made decades of qualifying NI contributions during their working lifetime, and feel it is theirs by right.

I only wish it was.

Unfortunately, as the Office for Budget Responsibility makes clear, NI contributions are only “notionally used to pay for the state pension and other contributory benefits”, including the NHS.

Note that phrase: “other contributory benefits”. That’s what the state pension is.

READ MORE: Extra £76 a month being handed to some state pensioners – check your eligibility

As for the National Insurance Fund, I wouldn’t get too excited by that.

Reader acecanna argues that “there is a NI Fund used to pay pensions it is the nearest thing we have to a hypothecated tax”.

The definition of a hypothecated tax is one where the revenue is ring-fenced for a particular expenditure purpose.

NI is indeed the nearest thing we have to a hypothecated tax, but it covers a heap of benefits as well as the state pension.

As this site makes clear: “It is not a genuine hypothecated tax. It is a book-keeping exercise.” Ouch.

Sadly, reader Sparhawk also gets it wrong when stating that the state pension is a contributions-based scheme, not a benefit. “Private pensions are also a contributions-based scheme, and they’re not benefits.”

Unfortunately, state pensions aren’t like private pensions, precisely because there is NO personal money pot built up. Instead, it’s a social contract. We pay in and expect to get something back, we just cannot decide how much. We get what the government thinks it can afford.

Not what we’ve paid in.

This means that some get less than they have paid in. Others get a lot more.

It shouldn’t have been this way. There should be a nice big pot of money dedicated to the state pension, sitting there waiting to be claimed.

There isn’t and never will be. Today’s state pension is funded by today’s workers and that’s a real problem, as society ages and the ratio of workers to pensioners shrinks.

Express readers are right to be worried by the fact that the state pension is defined as a benefit. Unfortunately, it is.