This week, was Budget week. Self-employed people were targeted Philip Hammond against the conservative manifesto pledge, not to increase tax and national insurance (the specifics were never stated in the Conservative manifesto — it was all NI contributions. No segmentation).
We know this was a Brexit related and Philip Hammond was very careful not to mention the B-word when presenting the budget this week.
Yet, there appears to be a lot of misunderstanding about how National Insurance works and what it pays for. Everyone pays it. but very few understand it’s history, operation and limits.
Back to the Past
A two year old meme has started doing the rounds again and makes a couple of glaring errors which you can comfortably add to the list of “fake news”/alt-fact.
I was directed to this by a friend of mine. The article mixes some truths with a whole heap of junk-analysis to come to a conclusion on the UK State Pension which, if you didn’t know better, would be a reasonable conclusion to arrive at.
However, the devil is in the detail. When you start picking at this, you suddenly find the answer isn’t quite as clear cut as it makes out.
Analysing the Analysis, Meta-Meta
The conclusion and analysis are both wrong, because it does not take into account the full set of financial responsibilities of National Insurance (the guy can say the words National Insurance if he wants to — it’s no great secret). State pension is only one part of this. NIC also provides:
- welfare benefits (ESA, PIP, winter fuel, JSA, over 75 license, pension credit etc.) — £171 billion
- The NHS (note that isn’t what income tax pays for) — a tiny, and currently almost insignificant number, but may rise next year.
Of the welfare budget, state pension alone, is £89 billion every year. It’s paid in 3 levels. Basic State Pension, Additional State Pension and New State Pension.
Unlike the assertion, the government doesn’t put the cash together with all other receipts in a bank account locked away in a vault, in quite the same way as strict reserved funds, but it is a reserved fund, barring its allocation except to the welfare streams and NHS mentioned previously. It doesn’t go outside the stream it’s allocated for, which is always the purpose of a reserved fund.
Anyone not working and claiming benefits does two things. They don’t contribute and they take from the budget. So cold hard numbers wise, and looking at only one snapshot, it may seem like for every pound they don’t contribute, they also take money from the general pot.
Let’s look at what the total receipts are for NI every year. The total for 2016 is £113.7 billion.
Did we see that?
Yes, we contribute £113.7 billion and withdraw 171 billion. A deficit of £57.3 billion a year. This guy missed that bit. How is this happening? Are we taking from other budgets to make that shortfall?
Not yet. What’s actually happening is that NI is akin to a savings account. This part of the post is correct. During surplus periods, we have added to the pot. Baby boomers; times of low unemployment and times where people died before reclaiming their total entitlement earlier in the life of National Insurance, all added from individuals every year. If people die before exhausting “their” funds, the money stays in the savings account.
NI was enacted through the Old Age Pensions Act 1908 and subsequently, the National Insurance Act 1911. It was designed to give older people over 70 (yes, 70) some funds for their latter years.
Yet, life expectancy in 1911 was 50 for men and 53 for women. Given the life expectancy at the time, it meant very few people really received an Old Age Pension. All that extra cash just remained in the fund.
Fast forward 100 years, and life expectancy had risen to 75 for men and 80 for women by 2011. Many many more people live to be 90+ and the reduction of pensionable age to 65, suddenly means the state pension found itself with almost a step change in the amount of cash it had to pay out, without a correspondingly significant increase in working population receipts.
When people’s life expectancy was 72, this wasn’t a problem, since, again as the post rightly says, 30 years post retirement was the plan. But things have changed and a couple of inferences and incorrect data were wrong with the post which then renders it completely false.
Falsehood in Hysteria
Firstly, as we’ve seen, life expectancy has now increased. Many people can expect to live 30 years past their initial retirement. Whether folk retire at 55 or 68.
Furthermore, NIC is credited. It is not an individual bank account. That is what Jobseekers stamps contribute to. There is no real interest. After all, who would pay it? The money is held by the treasury, not the Bank of England, it isn’t invested anywhere like private pensions are.
Also, the idea that people invest to pay their own pension is a misnomer. They don’t open one bank account for each of the working population. How unwieldy would that be? 23 million bank accounts?
Plus, the money is not saved for 43 to 50 years to then pay your benefits when you retire. What actually happens is the current working population put into the pot and the vast majority of state pension expenditure (it would have been all, if we didn’t have a deficit) is paid for entirely by these receipts, now, to older people. Young people, pay for old people.
With the funds being depleted at the rate they are, young people, paying for older people today, have to very seriously expect to not have a state pension by the time they retire. Older people are taking advantage of the young, in each generation.
Common Sense Conclusion
Shock, f***ing, horror. There, I said it. I told the real truth and it’s unpalatable. Many people will choose not to believe these facts. But they are facts, regardless of their belief. Gravity exists whether we believe it does or not.
In any event, it’s obvious when we think about it. It makes it easy to see through. When the act started in 1911, did the first contributors wait 50 years or did it start paying existing old people immediately?
Answer: They paid older people immediately.
Where did that cash come from? The working population In 1911, they put their contributions into the pot and Old Age Pensioners (OAPs) over 70 immediately took out of the pot. The OAPs, what little there were in 1911, didn’t pay anything into the pot before 1911, yet they withdraw from it. As stated throughout it’s history, the State Pension is a benefit for old people “paid by the young”.
Also, did anyone else not see in the list of benefits that foreign aid doesn’t comes out of NIC? National Insurance? Paying for Pakistan!? I mean what?
PAKISTAN WASN’T A F**KING COUNTRY UNTIL 1947!!
This is just a plain false race issue used to create divisiveness and perhaps create more of an appetite for Brexit.
What is arguably even more tragic about Brexit, is that the people claiming the State Pension, voted out, removing the potential from younger people, who will be and are, currently paying older people’s state pension. Very few people working, or arguably even born today, will be paying for today’s young people’s state pensions when it’s their turn. That’s the irony!
It is clear this guy has just enough knowledge to be dangerous! It is these sorts of people who will also be empowered by the Brexit vote, since their false news shamelessly travels further as it looks almost plausible.
What is Britain coming to?
Credit to Les Leckie for a correction on the dates of the Old Age Pensions act.
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