ni

[cosmo]

i have paid 30 years NI contributions and i'm aware that part of the contribution goes towards my state pention. So why am i still paying the full amount of NI contributions.

[hc4361]

Your NI contributions are not paying for your pension. The money doesn't get invested on your behalf, for you to draw on later.
You are paying for the pensions of those already at pension age, and when you are retired the workers will be supporting you.

[New Judge]

hc4361 is quite right, and thereby hangs the scandal.

HMRC website explains that �You pay National Insurance contributions (NICs) to build up your entitlement to certain social security benefits, including the State Pension.�

Of course, what it does not say is that those making no NICs retain the entitlement to certain social security benefits including, albeit by a different name, a State "pension".

So, from the outset, a State pension is viewed as a �benefit� and not a proper pension at all. A proper pension involves a direct relationship between contributions made and payments received and (with the exception of those schemes covering government and local government employees) the funds collected are invested on behalf of the employee to be drawn in retirement.

NI does not work like that. It is simply an additional income tax (at 11%, making the true basic rate 31%) which is used to fund all manner of things, including the payment of State pensions.

The fact that (from 2010) contributions beyond 30 years will make no difference to your pension cuts no ice. You continue to pay at the full rate to fund existing State pension payments and, of course, a multitude of other benefits (mainly for people not working and not of pensionable age).

The answer to this is to split the State pension fund away from the �benefits� budget and impose a link between what people pay into their pension fund and what they draw out (as in the real world). That way, you can work and contribute as much or as little as you wish.

Alternatively allow people to keep a bit more of their own money and make their own pension arrangements. The downside to this idea is, of course, that �poor� people will say they have insufficient funds to invest for their retirement and will still have to be kept by the State (i.e. the tax and NI payer) in �retirement� anyway.