Scrap NI and means-test state pension, think-tank says

25 Nov 13
National Insurance should be scrapped and replaced with ‘personal welfare accounts’ that provide an income during periods of joblessness, parental leave, higher education and retirement, a think-tank has suggested

By Tom Forrest | 25 November 2013

National Insurance should be scrapped and replaced with ‘personal welfare accounts’ that provide an income during periods of joblessness, parental leave, higher education and retirement, a think-tank has suggested.

In a report published today, Civitas argues that National Insurance is ‘no longer fit for purpose’. It recommends abolition and that enrolment in a private workplace pension scheme should be made compulsory.

Peter Saunders, author of the Beyond Beveridge report, said that NI had changed beyond recognition over 70 years. It should be replaced, but the contributory element must not be lost.

‘A move to personal accounts would overcome many of the weaknesses and problems in the current NI system, while strengthening the vital contributory principle at its core,’ he writes in the report.

‘It would reduce pressure on the public finances as well as delivering an effective system of social security, which is responsive to people’s needs and widely regarded as fair by the public.’

Saunders, who is professor emeritus at the University of Sussex, proposes that the accounts are mainly used to save for retirement. But they could also provide cover for short-term unemployment, sickness and parental leave.

He suggested that abolishing National Insurance would undermine the case for a universal state pension. It would necessitate means-testing the state scheme and for enrolment in the government’s new work-based pension programme to be compulsory.

‘Means-testing the state pension, to target state benefits more precisely on those in need, is not only a sensible and desirable policy – it may be an unavoidable one,’ Saunders said.

He claimed that the UK government currently owes more than £5trn in pension obligations – £4.7trn of which is unfunded. This equates, he suggested, to 342% of UK GDP.

‘The proposal to make retirement saving compulsory is intended to rescue and strengthen the contributory principle, weaning the nation off benefits dependency and encouraging people to take more responsibility for themselves.’

Saunders added that private pensions could be topped up with the proceeds from the sale of public assets, such as Royal Mail, the part-nationalised banks and mobile phone licence auctions.

People would be able to borrow against them to meet university costs and provide an income.

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