Report of the Committee on the Economic and Financial Problems of the Provision for Old Age.

  • Great Britain. Committee on the Economic and Financial Problems of the Provision for Old Age
Date:
[1954]
Catalogue details

Licence: Public Domain Mark

Credit: Report of the Committee on the Economic and Financial Problems of the Provision for Old Age. Source: Wellcome Collection.

    46/128 (page 40)
    of the benefit, relate almost entirely to retirement pensions, will emerge in the future as an excess of expenditure over income—and may be termed the “ emerging cost”’. 153. As expenditure was expected to exceed income from contributions (including the Exchequer Supplements) from the inception of the Scheme, provision was made for annual Exchequer payments to maintain the National Insurance Fund at its starting level. A scale was fixed at an initial payment of £36 million, rising by £4 million each year until 1955; thereafter the level of the additional payments to the Fund was to be determined by Parliament. The state thus assumed liability for the emerging cost of the retirement pensions then provided in addition to supplementing the contribu- tions. To relieve the Exchequer of some part of the heavy increase in future expenditure, the 1946 Act provided that after five years the contribution paid by the insured persons (and their employers, if any) should be increased by 4d.* 154. The method of finance adopted under the 1946 Act was comparable as far as pensions are concerned with that of the earlier Contributory Pensions Acts. The contributory principle was first applied to state pensions for old age by the Widows’ Orphans’ and Old Age Contributory Pensions Act, 1925. The pension contributions required by that Act from employed persons and their employers were also calculated on an actuarial basis; if contributions were paid from age 16 until pension age, and funded, they would have provided the contributors with pensions from age 65 until age 70. Pensions to which contributors became entitled after age 70 were payable as of right without a means test. The joint contributions were not funded and were applied to meet the pensions currently payable at the full rate to persons who had not paid adequate contributions from age 16. The resulting cash deficiency on the Pensions Account was to be covered by an equalised Exchequer grant fixed initially at £4 million a year for the first 10 years of the scheme. The Act provided for three decennial increases in contributions, as it was intended that for persons entering insurance after 1956, the joint contributions of employers and employees should cover the whole cost of their pensions including those payable after age 70. The financial arrangements introduced by the 1946 Act differed only in detail ; in particular, a specific Exchequer Supplement fixed as a proportion of the joint contributions of employers and employees was introduced. 155. The financial provisions of the 1946 Act were modified by the National Insurance Act, 1951. On Government instructions the scheme had originally been financed on an assumed average rate of unemployment of experienced there was a considerable surplus of income to the Fund during the first years of the operation of the Scheme. The assumed average rate of unemployment for the purposes of assessing the adequacy of the rates of contribution and estimating income and expenditure was therefore reduced to 4 per cent. The provision for annual payments from the Exchequer was repealed and at the same time the Exchequer Supplement was adjusted. This Supplement now amounts to approximately one-seventh of the total provision for meeting any annua] deficits which may arise. retirement pensions, and all retirement pensions were further increased by the Family Allowances and National Insurance Act, 1952. The result of * Report by the Government Actuary on the Financial Provisions of the National Insurance Bill, 1946. Cmd. 6730, paragraph 24.