Ms Abrahams has done a sterling bit of detective work and calculated that not only are we NOT a drain on the state, as the Tories insist, but that our state pension pot was showing a surplus year after year. She also tackles the NICs sleight-of-hand, which has been largely ignored or overlooked by the powers that be.
The government has cynically used the mask of "equality" to steal tens of thousands of pounds from some of the poorest in Britain: around £40,000 for some of us when you take into consideration the soaring cost of NICs to replace the Class 2 contributions abolished by George Osborne in his last budget. One serious step towards a meaningful equality would be to ensure women receive equal pay rather than the 80 per cent of men's income that we average.
And let's not forget that the super-rich have tripled their wealth since the 2008 crash.
I hope there will be a legal challenge, perhaps some sort of class action, if we don't receive our fair pension. I admit to a lack of confidence in the pensions minister, Baroness Ros Altmann, who, far from proactively fighting our corner, has belatedly had to be dragged into the spotlight, suggesting that the best we can hope for is a slightly earlier pension age at a reduced rate. The crumbs are getting smaller.
Written evidence from Rita Abrahams (ESP0178)
I would like to start with asking the following question of the committee, before the debates in February and March how many read the Government’s Actuary report on the National Insurance Fund which was issued on 25th January 2016?
I raised this question for the very simple reason that the financial position of our National Insurance Fund might not have been accurately referenced, in fact it might not have been referenced in any of the debates which is very worrying as that’s the account which pays out contributory benefits such as the State Pension.
Many who wrote, talked and voted against the motion questioned how could the Government fund the request of WASPI, here just two of those quotes: Marcus Fysh (Yeovil) (Con): It would be unfair for us to continue to burden younger generations with extra taxes in order to make more concessions than we have already.
Richard Graham (Gloucester) (Con): When I explain to women born in the 1950s that state pensions are paid out of normal expenditure, not some magical pot of gold from NI contributions, and that our (1950s generation) pensions will be paid for by our children and grandchildren’s taxes, they all get the point.
Such remarks would indicate that the Actuary report’s wasn’t considered before the vote, in fact other remarks would indicate little knowledge of how our National Insurance Fund actually works. I hadn’t realised but basically our National Insurance Fund was set up as a pay as you go system; its income comes from National Insurance Contributions and expenditure can only used to pay for contributory benefits such as State Pensions, a working balance of 1/6th of annual expenditure is required to be kept in the fund for emergencies.
The latest Actuary report published in January projected that by April 2021 our National Insurance Fund will have a balance of £58 billion; thus after setting aside the working balance requirement of £18.52 billion (1/6th of payments) a surplus would remain of £39.48 billion.
The surpluses over the working balance for each of the next 5-years roughly breaks down as follows.
2016-2017: - £ 9.78 billion
2017-2018: - £ 3.85 billion
2018-2019: - £ 5.65 billion
2019-2020: - £ 9.10 billion
2020-2021: - £11.10 billion
I question how many who voted against the motion knew of the projected £39.48 billion surplus and if they did then why did they not raise that most important fact as evidence during the debates, but if they hadn’t known about the latest Actuary’s report then doesn’t that make a farce of the vote.
Therefore, contrary to belief there would be no requirement to increase general taxes going forward or use funds that have been set aside for other projects since that £39 billion is a totally unexpected surplus as in January 2015 the Actuary projected a fund value at April 2020 of only £10.62 billion so not even enough to cover the working balance; the Actuary’s latest projections for April 2020 now stands at £46.299 billion.
Importantly to note is that by October 2020 both women and men would have reached the new SPA of 66 and at the end of that same financial year in April 2021 our National Insurance Fund surplus is still projected by the Actuary as increasing at a very high rate and in that year alone it will receive £11.7 billion more in receipts than it is paying out in
benefits. Thus, shouldn’t this have been used as evidence during the debates into the WASPI petition as this casts a totally new and opposite perception on affordability?
Consequently, as any surplus within our National Insurance Fund can only be used for contributory benefits then if we use it for the purpose it was designed and collected for then it’s a cost neutral win-win situation not only for those affected but also for the country.
When recycling our National Insurance Fund’s unexpected surplus to those disadvantage by the age equalisation act it will also help to stimulate the country’s economy, some will see it’s way into the Government’s purses though taxes, some will retire when they had planned so giving up a job to a younger person, some being carer’s to older and younger family members and the many other positive results that has been mention during the debates.
And to better understand why we should be first utilising the surplus in our National Insurance Fund before placing the cost onto those who had been disadvantaged by the mismanaged communications I would like the committee to consider and comment in their report on the following.
Prior to the 1995 Pension Act SPA remained constant for over 50-years so one can justly classify any increase in the SPA as being a significant change and as such wouldn’t one expect to be notified in a timely manner?
In the White Paper Equality in State Pension Age published in December 1993 CM2420 it states within chapter two the following:
2.1 In developing its proposals for implementing the change the Government has paid particular attention to the need to give people enough time to plan ahead and to phase in the change gradually.
2.2 The change will not begin to be implemented until 2010. This lead-in period of over 16- years allows plenty of time for people to adjust their plans.
Part I of the Pension Act 1995 which applies to all occupational pension schemes (not the State Pension) sets out in Section 67 a number of limits on what type of changes can be made to ones pension. The Pension Advisory Service describes that section in the following terms.
“Over the lifetime of your pension, it's possible that your employer or trustees may want to make changes to your pension scheme. If this happens, you should be consulted if the changes affect how you build it up. Unless you agree, any change should not alter the benefits you have already built up. In addition to various pieces of legislation, the rules of your scheme will outline what your provider can and can't do. It's important the rules are followed. If they are not, the changes may be invalid. In broad terms, unless you give your written consent any changes can't worsen benefits you’ve already earned”.
The equalisation of State Pension Age was covered within Part II section 126 of the same 1995 Pension Act, but no reference or rules were listed to how State Pension changes should be communicated to all those affected.
The Pension Act 1995 was also the result of many pension scandals such as the Maxwell affair which brought about various investigation’s such as the Goode report in 1993, a Social Security Committee report in 1992 and a White Paper in 1994.
The Goode Report commented on cases where “pension scheme members have suffered from unfair treatment, inadequate and misleading information and delays in the payment of contributions and benefits.”
While the Social Security Committee stated, “Members should have the right to information about their scheme which is 'succinct, easily understood and timely.”
I picked out the above examples from the many within those reports so to not only highlight how the Government wanted all occupational pension schemes to be administered but also that those creating the 1995 Act and also those voting on it might have taken for granted and therefore presumed that similar communication requirements were already set in place within the State Pension Scheme.
Evidently, the requirements to adequately notify SPA changes to all those affected were either not followed or there were no requirements/rules laid down at all; either way it highlights how the same 1995 Pension Act successfully laid down notification rules to members within Occupational Schemes but failed when it came to notifying members within the State Pension Scheme.
Consequently, when reading in the White Paper for the need to give people enough time to plan ahead so to adjust their plans I believe MP’s would have assumed that women would be notified soon after the act was passed; had it been known before the vote that the very first batch of individual letters would actually be delayed by 14-years then wouldn’t MP’s have requested additions to the State Pension rules so similar to those rules governing occupational pension schemes on notification of significant changes?
The proposals within the reports leading up to the 1995 Act of timely informing people were clearly not followed through and there is now more than enough evidence to come to the conclusion that the communication was mismanaged, this clearly disadvantaged women born after 1950 and that lead to a financial loss and hardship in so many ways; one of those being the opportunity to contribute into a pension scheme for over a 15-year period so to help fund an expected retirement at 60.
Admittedly not everyone could afford making additional pension contributions but at least everyone affected would have been given that choice and opportunity and when taken up tax relief averaging over 25% would have uplifted those 15-years of contributions for a basic-rate taxpayer plus increases from their investments.
When also considering the rule governing occupational pensions, which the Pension Advisory Service states in broad terms, unless you give your written consent any changes, can't worsen benefits you’ve already earned, then clearly the accrued benefit that I had built up in my SP and payable from the age of 60 was not only drastically reduced but it was without notification and also my consent; one rule for one and a different rule for others comes to mind, but in fact maybe no rule even existed for the State Pension.
Thus a cost neutral outcome would clearly not be seen as a fair conclusion and therefore before someone takes this to the courts wouldn’t it be advisable to classify this as it is, a real financial loss and thus similar to PPI and the financial and pension mis-selling which compensation has and is still being paid out?
I suggest the committee looks further into the National Insurance Fund projected accounts by the Actuary at: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/494 930/53430_GA_UpRating_Report_2016_Accessible.pdf
And here are some facts to be going on with.
1) Our National Insurance Fund (NIF) holds the contributions of the National Insurance Scheme which is funded by compulsory contributions on earnings, paid from employees, employers and the self-employed, plus interest on its investments and is used exclusively to pay for social security benefits such as state retirement pensions.
2) A fixed proportion of our National Insurance Contributions (NICs) goes directly to the National Health Service (NHS); this allocation is paid directly by HMRC into the NHS account.
3) NIF is like a current account and is kept separate from all other revenue raised by national taxes and the Government has no powers to use NICs to fund anything else.
4) NIF is operated on a pay as you go basis so this years contributions pays for this years benefits.
5) In 2003 there was a 1% increase in NICs, but the full 1% increase went directly into the NHS account and wasn’t proportionally split as one would expect into both our NIF and NHS accounts.
When looking at the years prior to and after the 1% increase in 2003 one can see a dramatic boost that almost doubled the amount of our NICs that was directly transferred by HMRC into the NHS account.
NHS allocation funded from NICs between 2001-2015
2001-2002 - £7.8 billion
2002-2003 - £8.0 billion
2003-2004 - £14.9 billion
2004-2005 - £16.8 billion
2005-2006 - £18.4 billion
2006-2007 - £18.9 billion
2007-2008 - £21.0 billion
2008-2009 - £20.7 billion
2009-2010 - £20.3 billion
2010-2011 - £20.4 billion
2011-2012 - £20.6 billion
2012-2013 - £20.5 billion
2013-2014 - £20.8 billion
2014-2015 - £21.5 billion
If the 1% increase in our NICs had instead been shared out in the same proportions, as before, then between 2003 and 2015 our NIF account would now have a surplus of over £100 billion more than the working balance.
Unfortunately, it seems that the Government at the time decided that our NIF did not required extra funding; maybe it’s time to reverse that decision and share out our NICs in the same ratio as it was prior to the 2003 change. Admittedly that would mean less being transferred from our NICs to our NHS and therefore that shortfall would need to be made up from our general taxes but that would be more appropriate as all taxpayers would be contributing into this and not just working people under the state pension age who are the only ones liable to pay NICs.
It could appear to an outsider that the Government in 2003 did in a way act similar to Maxwell, using our benefit contributions to increase funding in a total separate business and in doing so might have helped in the perception that the state pension system is in the long term unaffordable and thus the SPA had to increase and for some at a quicker rate. Thus, has our Government been mismanaging our NIF, maybe they need to look into using our NICs in at least the same proportions as it was in 2002 so to delay future SPA increases.
During 2020-2021 (so after SPA equalises at 66) our NICs will raise approximately £153 billion, of that around £30 billion will be transferred into the NHS fund with the remaining £122.8 billion being transferred into our NIF, payments for benefits will be £111.126 billion as estimated by the Actuary leaving a surplus in that year alone of £11.674 billion.
I might be naive but maybe its about time to have two-totally separate forms of deductions with no cross-over so our NICs would only pay for our contributory benefits while the NHS would only be funded from our general taxes that all taxpayers contribute into? This has to be a much fairer system all round, understandable by all and if that scenario took place in 2021 there could be a surplus of over £41 billion in that year alone and clearly with that sort of annual surplus NICs could be reduced and/or further SPA’s increases could be shelved. Yes, there would be a resulting shortfall in the NHS accounts but then all taxpayers no matter what their age so including pensioners, whether working or not would correctly manage that NHS shortfall and therefore helping all age groups towards a fairer State Pension.
Call for written submissions addressing the following points.
What would be the short-term and long-term fiscal impact?
When using the surplus in our National Insurance Fund there would only be positive impacts, one example would be that some would find its way back into the Governments purse through personal tax.
What would be the other costs of the scheme?
If using our NIF surplus it’s basically only the cost to administer and due to the unequal and limited surplus each year there’s a need to find a simple no frills package which might include only one choice to defer, so if chosen deferral has to be until ones SPA as per the 2011 Pension Act and there would be no increases such as the 5.4% p.a. bonus for each year of deferral. Also NICs would still be payable for those still in employment up to the ages within the 2011 Pension Act.
Could additional costs be incorporated in the reduction factors used to achieve long-term fiscal neutrality?
No requirement if the NIF surplus is correctly used.
How should the scheme interact with pension credit and other benefits?
As currently with any State Pensions in payment.
How could uncertainty within the system be budgeted for and managed?
Currently around 20% of NICs is transferred into the NHS fund with 80% into our NIF, if in 2020 we revert to the 2002 percentages so with around 12% going into the NHS fund and 88% into our NIF then that would give our State Pension Scheme an extra uplift in just that one year alone of around £12 billion. And if the Government ran it more like a company pension scheme so all NI contributions went into our NIF and none to the NHS then that would result in an extra uplift that year of around £30 billion and when added to the expected balance at the end of that year of £58 billion, that’s a massive pot of £88 billion and some £70 billion over the working balance. Clearly this would be a much simpler, fairer, manageable and understandable pension/benefits system, which would result in not only lower NICs from employer and employee but also possibly placing on hold any further SPA increases. Obviously the NHS shortfall would need to be funded from general-taxes but that’s payable by all tax payers no matter what their age.
How are similar schemes managed in occupational pensions?
No answer required if our National Insurance Fund surplus is used, but worth noting that occupational schemes would not have got into this predicament due to the 1995 Act governing communications.
Who should be eligible and why?
All who’ve not received 10-years notice of a change to their SPA, so including both men and women, thus men 55 or older who’s not received notification should still be allowed to take their State Pension at 65 and women 50 or older who’s not received notification should still be allowed to take their State Pension at 60.
How popular would the scheme be among the people eligible?
When using the NIF surplus for what it was collected for then it would be immensely popular and also to their families as it would help in caring for both the younger and older members of those families.
What impact would it have on the lives of the people eligible?
Positively and in so many individual ways and to name just two, less stress and financial worries.
Link to the Governments Actuary’s report on the projected position of the National Insurance Fund over the next five financial years which was issued in January 2016. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/494 930/53430_GA_UpRating_Report_2016_Accessible.pdf
The table below is taken from page 33 of that report which shows the improvement in the fund from the previous year’s report, note the difference with a fund balance at financial year end in 2019-2020, the previous report was £10.622 billion; the latest report issued in 2016 is £46.299 billion and by April 2021 there’s a projected balance of £58.002 billion.
This unexpected surplus which had not been referenced at all during the debates clearly resulted in a misguided conclusion, that compensation for the WASPI ask was unaffordable and consequently the only option put forward was an early retirement but of a lower Sate Pension so to be cost neutral to the fund.
Rita Abrahams — My Brief History.
Born August 1954
Started full time work August 1969 at the age of 15-years and 2-weeks.
Gave birth in 1982 and after a short break of 4-months returned to part-time work.
I gradually increased my working hours and by 1990 had returned to full-time work. Received at my request a State Pension Forecast dated 10th December 1993 with a SPA of 60.
Reason for submitting this evidence, I never received a follow up statement to indicate there had been a change to my December 1993 statement; this was a major error and failing by the DWP.
Found out about SPA increases from a newspaper report in 2011.
Unexpectedly made redundant in 2015.
Spent about 3-months on Job Seekers, felt belittled, uncomfortable and stressed, now doing voluntary work.
Trying to hold off drawing my company pension due to reduction factors so living off my savings.
Finally and to this day, I have never received any personal notifications with regards to any of the significant changes made within any of the Pension Acts, but at my request I recently received a State Pension forecast.