State Pension Affordability

[Protagoras]

There's an ongoing debate about the affordability of state pension, so just out of curiosity I was looking at the value of my state pension (due in a few years) vs the employee contributions made. There were a number of student years where I made no contribution and received credits.

At a discount rate of 5% (roughly the long term UK interest rate) the PV of employee contributions at state pension age will only be £170.4k. With full state pension entitlement I reckon I need to reach about 80 to break even on the employee NI payments.

Now I realise that this is a sample of one, but given that I've not included employer contributions this hardly looks unaffordable to the treasury if NI contributions had been invested. Ah, but they're not invested, they're treated as current revenue, aren't they?

[NotAllThere]

You'll love this. As a British citizen living abroad, I only had (it's changed now) to make class 2 contributions. About £200 a year, to keep my full contributions. Now it's about £1000, as the government changed the rules so it must be class 3. We've kept up our contributions, so when we retire, we'll both get full pension. By 70, I should be getting more out than I put in.

In another country, the amount of pension isn't only based on number of contributions, but how much. I'd recommend the UK try it.