Pyramid National Insurance Scheme

Deliverance Day minus 28 and no sign of the National Insurance contributions fracas subsiding. The National Pensioners Convention has stepped in and criticised the three political parties. Dot Gibson, NPC General Secretary, said – “All the main political parties are misleading the public over the issue of NI. NI is primarily collected to pay for pensions and contributory benefits. Only a very small proportion goes to the NHS and none of it is meant to be for education or the police. Pensioners are therefore understandably concerned that NI is being spent on everything but decent state pensions. The public need to know the truth about NI and none of the politicians are being honest about it. Raising NI would be popular if it was going to pay for higher state pensions rather than being used as a political football.”

So what is the truth? The National Insurance Scheme was started on 5th July 1948 to provide pensions and benefits where individuals meet the contribution and qualifying conditions. Labour wanted to payout of the NIS immediately instead of building up a Fund as a private pension scheme would have to do. Instead they went for a pay-as-you-go system where the contributions are used to pay the pensions. In this respect it is like a huge pyramid selling scam and can only function if more money is coming in than is going out. People paying in have to be confident that they will get a payout when their time comes. As the payment of contributions is compulsory there is an unwritten compact that the Government will meet any deficit. No sooner had the NIS started, than the politicians became worried that it was unsustainable. From the early 1950s they kept looking for a solution before the pyramid collapsed, but none of the Parties were prepared to undertake any measures that would prove unpopular and lose them votes. It is also claimed that the reason why the retirement age was originally set at age 65 is because the average age of death was 64 years. Half of the contributors would die before they could claim a state pension. Two people’s contributions would pay for one person’s pension. Cynical or what?

Both Labour and the Conservatives had a window of opportunity to solve the problem, but neither did. North Sea oil revenue was a national windfall. Other countries have used this sort of revenue to create National Sovereign Funds for the purpose of investment in long-term returns. In the UK we could have done that and also put a substantial part of the oil revenues in to the National Insurance Fund for the benefit of future generations. To over simplify what happened; Labour used the revenue to further their public spending agenda and the Conservatives preferred to cut taxes at the top end. Both would claim that the economic and financial situations dictated their respective actions. Indeed they all denied the very existence of the NI Fund and claimed it was a notional fund and accounting tool as they resisted demands to improve the level of the state pension. The pension was reduced by the Conservatives when they cut the earnings link. It was downgraded as people were encouraged to make provision for their old age through a second or additional pension. Pensions were a political football with many changes. Labour’s State Earnings Related Pension Scheme was meant to fill the gap for people who could not access an employer operated scheme. The Conservatives scrapped SERPS to make way for portable personal pensions provided by assurance companies. Those companies profited from the sale of such assured pensions and there was the mis-selling scandal. When New Labour came to power in 1997, Gordon Brown rescinded the tax breaks enjoyed by pension schemes and took a reputed £5billion pounds a year to fund Labour’s agenda. This has destroyed what was the best pension regime in Europe. Never fear, people can fall back on the much reduced value state pension. Except that GB has also raided that scheme. Six years ago GB used a stealth increase in NI contributions to fund a NHS spending spree. He is now repeating the exercise but in addition to the NHS it will plug holes in the education and police budgets. There might be some small justification if the public was getting value for money, but they are not. It has been soaked up in management expansion and wages.

The transfer of NI contributions for other purposes is not transparent. The Government borrows the funds from the NIS but we do not know for how long and from where they are going to get the money to repay it. They have no money of their own, so it must come from future general taxation. Hang on! That means we are paying twice for our state pensions. First by our NI contributions and then by income tax and VAT. This is a bigger scam than the original pyramid selling of NI contributions and the promise of a pension.

Picture the scene. Del Boy Brown comes knocking on your door to sell you Pension Assurance. He offers you a guaranteed pension at age 65 [25% of national average earnings] in return for a small weekly contribution, which for ease will be deducted directly from your wage by your employer who will also match your contribution. To prove that you have paid, your employer will place a postage style stamp on you own personal record card. He tells you that every contributor will have security because your contributions are to be put in a Fund that will build hospitals, schools and police stations. So you will have a share in and be a co-owner of these tangible national assets. A veritable rock solid security. Except that he does not use the fund money in that way. Instead he gets some fly-by-night entrepreneurs to build the hospitals, schools and police stations; and lease them to the government in return for extortionate rents over fifty years. He calls this a PFI (Private Finance Initiative) which has nothing to do with the PAF (Pensions Assurance Fund). In fifty years the tangible assets will become the property of the government and the asset of the Pension Assurance fund. But in fifty years time these jerry-buildings are worn out, not fit for purpose and have to be demolished. By then the fly-by-nights have scarpered to Belize and Del Boy Brown has done a runner.

To rub salt in to the wound, Del Boy increases your contribution, reduces the value of your final pension, and makes you pay contributions for longer. This above story is a generalisation, but it explains simply what has happened since the ‘great’ Labour election victory of 1945.

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3 Responses to Pyramid National Insurance Scheme

  1. G.Stanton says:

    It is thus necessary for every employee to find out how much roughly his/her income will be during retirement, relate the figure to the sort of lifestyle anticipated, and if at all the pension will not be sufficient, start stashing some extra money away in a personal pension fund.
    Private Pension

  2. That rss page on your blog here is brilliant, you should tell people about it in your upcoming post. I haven’t noted it a first, now I’m using it every morning to check on any updates.

  3. Really helpful piece Pyramid National Insurance Scheme Resurgence… Carry on publishing

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