Pensions = Pyramid Scheme

OP, there is no "excess" created with state pensions. Contrary to what is widely believed, National Insurance contributions are not kept in some ring fenced personal fund to provide your pension. The money you and your employer pay goes straight into central government funds and is used to pay for everything funded by the state. It is for all practical purposes just another tax.

Your NI contribution record creates an entitlement to a certain level of state pension according to the prevailing rules. However the pension you finally receive is actually paid from central government funds, so actually from current tax receipts from all sources including PAYE/ NI being paid by current workers while you are retired.

There is no cast iron guarantee of receiving a state pension and this is purely discretionary like any other government spending. It depends on current government policy and could be scrapped altogether if a government wished to, though this would likely be so controversial as to be political suicide.

Changes in entitlement, however, have already been made by increasing retirement age, which reduces the amount of pension we will all receive in total.

OP, the money comes from people currently working and paying taxes. The current workers support the current retired people (and expect to supported by the future workers in their turn). There's no 'pot' of money.

The problem is that people are living longer so there's a greater burden on the current taxpayers.

It's a pooling of risks. Yes, the people who live longer benefit financially compared to those who die a couple of years after retirement.

That's how all insurance works, OP. If your house burns down or you're involved in a car crash, your house/car insurance pays. Effectively this is being paid for from the premiums of people who bought the insurance and didn't have to make a claim.

That's the whole concept of insurance.

I've wondered about this, too.

Private pensions are funded by your money (plus employer contributions) being invested for future growth. Your money is working for you and generating wealth for the country (I think) during the years that you are working. It remains yours even after you die, as it is part of your estate.

State pension OTOH is entirely different. IIUC it is paid in real time, not from investment. So the money that is collected through NI this month is the pot available from which to pay this month's pensioners (maybe not exactly this time frame, but not the years between money in pension out of private pensions). Hence the rising age at which people become eligible for the state pension.

I assume that you mean the state pension, since people with ‘money purchase’ (defined contribution) pensions are no longer obliged to buy an annuity when they retire, and anybody with a ‘final salary’ (defined benefit) pension will be getting a very good deal irrespective of how soon after retirement they die?

Is your question really, ‘I am the next of kin of somebody who recently died and I want to know why I’m not getting the pension payments [s]he would have received if [s]he had lived to the average age’?

The state pension isn’t backed by assets (current state pension payments are funded by current NI contributions) but I think it would be a stretch to describe it as a Ponzi scheme.

Even if you take the view that your own NI contributions will fund your own state pension, which they don’t really since it will be the contributions of working people when you retire that provide the funds, not everybody will have an ‘excess’ of NI contributions if they die relatively young, will they? What if you’re a 75 year old woman who brought up a family, didn’t work and then cared for elderly relatives? That woman wouldn’t have a full NI record because of the way things worked in the past, for example.

State pension is an insurance scheme that will pay out for however long you live, hardly a Ponzi scheme, unless you believe all insurances are one?

OP, your pension savings become part of your estate if you die before you are 75 (over that, the beneficiary pays tax). If you've started to take it via draw-down, then whatever is left becomes part of your estate. If you've used it to buy an annuity, then it will follow whatever the terms are.

I’m not sure what you mean? Your pension is yours. You would name beneficiaries so in the event you didn’t get to claim it, it would pass to someone you choose.