Young mother walking on the edge of the shore line holding her child

Imagine your future – Does NI pay for my State Pension?

Written by Gemma Darcy

I wanted to explore the future of pension planning in the UK. Oh no, I hear you say, this is just because you’re in the business of selling pension plans. While of course this is true, I also feel strongly about sharing my expertise and knowledge to encourage younger people to take responsibility for their financial futures as soon as they’re able.

Unfortunately, when Gen-X and Millennials look to retire, it’s highly unlikely they will find themselves in the same financial situation as my parent’s Baby Boomer generation. The probability was they began their careers with a final salary pension, purchased their own homes at an early age, became mortgage free in their 60s, giving them opportunity to release capital and maybe even retire early. And providing they’d paid enough National Insurance, a guaranteed State Pension, albeit much later than expected for some.

And so this three-part series explains what the Government is responsible for today, along with their plans for the future, and what we can all do about ensuring we don’t need to work until the bitter end.

Paying National Insurance means you’re contributing to your State Pension, right?

You may believe that paying National Insurance means you’re contributing to your State Pension. This is not strictly true; you are paying into the state pension scheme, but not your personal pension pot, so essentially funding the pot for those already receiving their State Pension. We look at what this means for the future of the State Pension.

According to the Office for Budget Responsibility, £124bn will be spent on state pensions in 2023/241. With life expectancy increasing and the number of children being born falling, there are projected to be 5 million more pensioners in the population by 2070, and just 1 million people of working age.2

As a result, the 2023 Review of State Pension Age3, recommended the Government revisit the timing people can collect their State Pension – currently from age 67 to 68, planned between 2026 to 2028. In fact, extensive research by think tank, The International Longevity Centre (ILC), suggests that to ensure affordability, anyone born after April 1970, may have to work until they are 71 before claiming their pension.

The ILC’s latest report4 published in December 2023, ‘One hundred not out: A route map for long lives’ states:

Younger people don’t have the financial assets that their parents and grandparents did. In 2010, those under 40 held just £7.53 of every £100 of wealth. Over the past decade, this has fallen significantly to only £3.98. The UK’s 14 million Gen-Xers save just £200 into their pension pots each month on average – one-third of this group are at high risk of retiring on insufficient income. By 2046, around one in eight people aged 65 and over will be renting their home.

The International Longevity Centre

Their conclusion: 

We need to seriously explore the case for bolder government and employer interventions that would drive and support behaviour change among individuals.”

And we’re not alone. Several European countries are also facing the same issue with their falling birth rates and longer life expectancy.

Older lady smiling

Setting the State Pension age

The Secretary of State for Work and Pensions is required by law to regularly report on this issue. The current legislated pathway is for the State Pension age to rise to 67 between 2026 and 2028, and 68 between 2044 and 2046. The legislation also stipulates that this Review must consider whether this pathway is appropriate.

By increasing the State Pension age, this naturally increases the employment rate of those reliant on their State Pension, resulting in more people available for work. So if the Government were to increase the age those eligible can draw on their State Pension, it should, by definition, extend the working life of those already in the workforce.

In an independent report on wider factors specified by the Secretary of State relevant to setting State Pension age, Baroness Neville-Rolfe included her recommendations on improving awareness and communications for individuals impacted by any changes to the State Pension age:

  • That the government should communicate their State Pension age at least 10 years in advance of them reaching this age. This should be by letter, or another method to be agreed with individuals
  • For those already within 10 years of their State Pension age, issue such notifications as soon as is practicable
  • Monitor State Pension age and financial awareness regularly, a minimum of every two years, particularly amongst vulnerable groups and young people to support improvements and feed into ongoing communications and education activity

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is dependent on individual circumstances.

To end on a positive note

Economist Andrew J. Scott, currently Professor of Economics at London Business School, has just published his book The Longevity Imperative: Building a Better Society for Healthier, Longer Lives. He doesn’t see aging populations depending on an ever-decreasing number of younger people to support them, he talks of a future of sustainable lifestyles with people investing in their finances, health and skills relationships to support a longer life, which also helps the planet. A man after my own heart.

Part Two of the series: Imagine your future – Is a Nest Pension enough? to follow soon

Further reading

Budget 2024 ILC’s response: NI cut could be better spent on longer, healthier lives 

ONC: Health and life expectancies


1 Welfare spending: pensioner benefits, Office for Budget Responsibility, November 2023

2 ‘The UK and other ageing populations will have to increase their state pension age to 71 by 2050 to maintain the number of workers per retiree.’ International Longevity Centre, 5 February 2024

3 State Pension age Review 2023,, 30 March 2023

4 ‘One hundred not out: A route map for long lives’ International Longevity Centre, December 2023

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