(c) crown copyright
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THIS DOCUMENT IS THE PROPERTY OF HER BRITANNIC MAJESTVS GOVERNMENT Printed
for the Cabinet.
September
1957
C o
SECRET
C
(57)
Py
N
o
-
205
16th September,
1957
CABINET
SUPPLEMENTARY
PENSION
SCHEMES
M E M O R A N D U M B Y T H E M I N I S T E R OF P E N S I O N S A N D N A T I O N A L I N S U R A N C E
T h e C a b i n e t o n 2 n d A u g u s t (C.C. (57) 61st C o n c l u s i o n s ) i n v i t e d m e t o
a r r a n g e for t h e p r e p a r a t i o n of d e t a i l e d p r o p o s a l s for a s u p p l e m e n t a r y p e n s i o n s
s c h e m e o n a g r a d u a t e d b a s i s o n t h e a l t e r n a t i v e h y p o t h e s i s of t h e i n c l u s i o n a n d
e x c l u s i o n of a c o n t r a c t i n g - o u t p r o v i s i o n .
2. T h i s t a s k h a s i n v o l v e d (i) w o r k i n g o u t a S t a t e s y s t e m of g r a d u a t e d p e n s i o n s ,
a n d (ii) t h e i n c o r p o r a t i o n t h e r e i n of c o n t r a c t i n g - o u t p r o v i s i o n s .
I am much
i n d e b t e d t o t h e B o a r d of I n l a n d R e v e n u e a n d t h e G o v e r n m e n t A c t u a r y for t h e i r
h e l p i n w o r k i n g o u t these p r o p o s a l s , with w h i c h I s h o u l d m a k e it clear t h a t t h e
T r e a s u r y h a v e n o t b e e n a s s o c i a t e d . T h e r e h a s also b e e n c o n s u l t a t i o n o n t e c h n i c a l
m a t t e r s w i t h r e p r e s e n t a t i v e s of t h e Life Offices a n d of t h e A s s o c i a t i o n of
Superannuation and Pension Funds.
3. I a t t a c h a s A p p e n d i x A to this p a p e r a d e s c r i p t i o n of a S t a t e g r a d u a t e d
p e n s i o n s s c h e m e , w i t h o u t c o n t r a c t i n g - o u t p r o v i s i o n s , a n d as A p p e n d i x B a
d e s c r i p t i o n of c o n t r a c t i n g - o u t p r o v i s i o n s s u i t a b l e for i n c o r p o r a t i o n i n t h e s c h e m e
set o u t i n A p p e n d i x A . A t A p p e n d i x C is a c o m p a r i s o n of t h e i n c o m e a n d
e x p e n d i t u r e of t h e N a t i o n a l I n s u r a n c e F u n d u n d e r t h e a l t e r n a t i v e s set o u t i n t h e
p r e c e d i n g A p p e n d i c e s a n d u n d e r t h e p r o p o s a l s , a n o u t l i n e of w h i c h w a s a n n e x e d
t o C (57) 165.
REASONS
FOR
CONTRIBUTION
STRUCTURE
SELECTED
4. O n e of t h e m a i n difficulties w h i c h a p p e a r e d o n close e x a m i n a t i o n of t h e
s c h e m e a t t a c h e d t o C (57) 165 w a s t h e p r o p o s a l t o a p p l y g r a d u a t i o n b e l o w t h e
" c r o s s - b a r , " so as t o d i m i n i s h c o n t r i b u t i o n s , as well as a b o v e it so as t o i n c r e a s e
t h e m . T h e effect w o u l d h a v e b e e n t h a t in 1960 t h e c o n t r i b u t i o n s for w o r k e r s w h o s e
e a r n i n g s w e r e b e l o w £ 1 1 a w e e k i n t h e case of a m a n w o u l d b e r e d u c e d in v a r y i n g
d e g r e e b e l o w t h e level t o w h i c h t h e y will b e r a i s e d n e x t F e b r u a r y u n d e r o u r
f o r t h c o m i n g legislation, a n d i n s o m e cases b e l o w e v e n t h e p r e s e n t level. I n o r d e r ,
h o w e v e r , t o p r e v e n t t h e c o n t r i b u t i o n s of w o r k e r s o n t h e l o w e s t levels of e a r n i n g s
falling b e l o w e v e n t h o s e of c o n t r i b u t o r s i n Class 3 ( n o n - e m p l o y e d ) , it w o u l d h a v e
b e e n n e c e s s a r y for s u c h e m p l o y e e s ( b u t n o t their e m p l o y e r s ) t o b e c o m p e l l e d after
t h e e n d of t h e financial y e a r t o p a y t h e a m o u n t n e e d e d t o b r i n g t h e p e n s i o n
e l e m e n t i n t h e a n n u a l t o t a l of c o n t r i b u t i o n s u p t o t h e s t a n d a r d r a t e for t h e
non-employed.
5. I t w o u l d clearly b e v e r y difficult t o justify t o P a r l i a m e n t a n d t o t h e
c o n t r i b u t o r s i n c r e a s i n g c o n t r i b u t i o n s b y 2s. a side in t h e Bill t o b e i n t r o d u c e d n e x t
session w h e n a t t h e s a m e t i m e p u t t i n g f o r w a r d p r o p o s a l s w h i c h , in 1 9 6 0 — t h e
earliest d a t e t h e s c h e m e c a n b e i n t r o d u c e d — w o u l d p r o v i d e i n t h e case of l o w e r
p a i d w o r k e r s for c o n t r i b u t i o n s a t a l o w e r level. T h e i n c r e a s e d c o n t r i b u t i o n t o b e
p r o v i d e d for i n n e x t Session's Bill will b e f a r f r o m p o p u l a r , a n d its o n l y defence,
i.e., t h a t it is n e c e s s a r y if i n c r e a s e d p e n s i o n s a r e t o b e p r o v i d e d , w o u l d b e v i t i a t e d
if w e w e r e ourselves t o say t h a t f r o m 1960 o n w a r d s t h e r e w a s n o n e e d for l o w e r
p a i d w o r k e r s t o c o n t r i b u t e so m u c h . C l e a r l y s t r o n g p r e s s u r e w o u l d d e v e l o p
a g a i n s t t h e p r o p o s e d 17.?. 6d. c o n t r i b u t i o n i n t h e first Bill, p a r t i c u l a r l y against t h e
employee's share.
6. N o r is it possible t o d i s r e g a r d t h e political a n d a d m i n i s t r a t i v e c o m p l i ­
c a t i o n s i n v o l v e d in collecting f r o m l o w e r p a i d w o r k e r s t h e b a l a n c e s r e q u i r e d t o
b r i n g their c o n t r i b u t i o n s u p t o t h e C l a s s 3 level for t h e year, w h i c h t o t h e m w o u l d
b e very s u b s t a n t i a l s u m s . T h i s w o u l d i n v o l v e s u b s t i t u t i n g for this p u r p o s e t h e
d i r e c t collection f r o m t h e m of a r r e a r s b y m y D e p a r t m e n t f o r t h e c o m p a r a t i v e l y
painless e x p e d i e n t of d e d u c t i o n b y t h e i r e m p l o y e r s . T h e difficulties of d o i n g this
i n t h e case of l o w p a i d w o r k e r s w h o n o r m a l l y live f r o m w e e k t o w e e k n e e d n o
e m p h a s i s . N o r w o u l d it b e easy t o justify e x a c t i n g a n a d d i t i o n a l c o n t r i b u t i o n f r o m
these workers which would not be matched by a contribution from their employers.
A f u r t h e r d i s a d v a n t a g e w a s t h a t , a l t h o u g h these w o r k e r s ' s u p e r a n n u a t i o n p o s i t i o n
w o u l d be s a f e g u a r d e d a s a result of t h e l u m p s u m c o n t r i b u t i o n t o b r i n g their a n n u a l
t o t a l u p t o Class 3 level, t h e fact t h a t t h e i r w e e k l y c o n t r i b u t i o n i n Class 1 w a s b e l o w
s t a n d a r d i n v o l v e d t h e i r receiving sickness a n d u n e m p l o y m e n t benefit a t b e l o w t h e
s t a n d a r d r a t e , a n d it w o u l d a p p e a r in s o m e c i r c u m s t a n c e s b e l o w e v e n existing
levels.
7. F o r t h e s e r e a s o n s I t h e r e f o r e a r r a n g e d for m y officials t o w o r k o u t a
g r a d u a t e d s c h e m e ( A p p e n d i x A) p r o v i d i n g for a flat r a t e of c o n t r i b u t i o n a t t h e level
t o b e i n d i c a t e d b y n e x t Session's Bill, i.e., Ms. 6d. for a n adult m a l e i n Class 1 a n d
p r o p o r t i o n a t e l y for o t h e r categories u p t o a n d at t h e c r o s s - b a r w i t h g r a d u a t i o n
a b o v e t h a t level only. T h e N a t i o n a l I n s u r a n c e e l e m e n t i n this 17s. 6d. c o n t r i b u t i o n
w o u l d b e divided e q u a l l y b e t w e e n e m p l o y e r a n d e m p l o y e e a n d t h e existing u n e q u a l
s h a r e s of t h e H e a l t h Service c o n t r i b u t i o n w o u l d t h e n be a d d e d . I n t h e result,
t h e e m p l o y e e ' s s h a r e of t h e t o t a l m i n i m u m c o n t r i b u t i o n of 17s. 6d. w o u l d b e v e r y
s l i g h t l y r e d u c e d , a n d t h e e m p l o y e e s s h a r e v e r y slightly i n c r e a s e d , f r o m t h e
p r o p o s a l s in n e x t Session's Bill, b u t this c o u l d b e justified b y saying t h a t in t h e
g e n e r a l r e f o r m it h a d b e e n t h o u g h t r i g h t t o divide t h e c o n t r i b u t i o n for all t h e
i n s u r a n c e benefits of t h e e m p l o y e d class w i t h e m p l o y e r s . A s 8 p e r c e n t , of e a r n i n g s
(4 p e r cent, a side) t h e figure p r o p o s e d i n C . (57) 165 p r o d u c e s 15s. lOd. (the a m o u n t
of t h e m i n i m u m c o n t r i b u t i o n e x c l u d i n g t h e H e a l t h Service e l e m e n t ) at a w a g e of
a p p r o x i m a t e l y £ 1 0 , I h a v e p l a c e d the c r o s s - b a r a t £10 a n d r e t a i n e d t h e p r o p o s e d
£ 1 5 ceiling.
8. T o c h a r g e c o n t r i b u t i o n s of less t h a n 17s. 6d. for e m p l o y e d m e n a n d
p r o p o r t i o n a t e l y for o t h e r categories of c o n t r i b u t o r s , as p r o p o s e d i n C. (57) 165
w o u l d r e d u c e t h e r e v e n u e of t h e N a t i o n a l I n s u r a n c e F u n d b y £130 millions a y e a r
in 1960-61.
OTHER CONSIDERATIONS AFFECTING CHOICE OF
SCHEME
9. T h e case for t h e p l a n o u t l i n e d i n C . (57) 165 d e p e n d e d to a g r e a t d e g r e e
o n t h e b u o y a n t r e a c t i o n of t h e c o n t r i b u t i o n i n c o m e u n d e r t h a t p l a n t o c o n d i t i o n s
of rising e a r n i n g s a n d p r o d u c t i v i t y , a n d t h e figures there given a s s u m e d , in
p a r t i c u l a r , t h a t t h e ceiling of £15 a week u p t o w h i c h g r a d u a t e d c o n t r i b u t i o n s w e r e
c h a r g e d , a n d t h e £8 a w e e k l i m i t a b o v e w h i c h g r a d u a t e d p e n s i o n b e g a n to b e
e a r n e d , w o u l d b e m o v e d u p pro rata, w i t h o u t a n y c o r r e s p o n d i n g i n c r e a s e i n b a s i c
benefit r a t e s . E v e n if this latter a s s u m p t i o n w e r e a c c e p t e d — a n d I r e g a r d it as
u n r e a l i s t i c , p a r t i c u l a r l y in view of t h e size of t h e s u r p l u s e s s h o w n — t h e s e p r o p o s a l s ,
like t h e earlier o n e s , w o u l d b e b o u y a n t i n r e s p e c t of i n c r e a s e d e a r n i n g s , w h e t h e r
d u e t o inflation o r i n c r e a s e d p r o d u c t i v i t y , t h o u g h of c o u r s e this w o u l d b e confined
t o t h e i n c o m e f r o m t h e g r a d u a t e d p o r t i o n of t h e c o n t r i b u t i o n . O n t h e m o r e
realistic a s s u m p t i o n t h a t basic benefit r a t e s w o u l d in fact h a v e t o be i n c r e a s e d f r o m
t i m e t o t i m e ( t h o u g h n o t necessarily i n d i r e c t p r o p o r t i o n to earnings) t h e
c o n s e q u e n c e will b e t h a t t h e flat r a t e m i n i m u m c o n t r i b u t i o n u n d e r t h e p r o p o s a l s
o u t l i n e d in A p p e n d i c e s A a n d B t o this p a p e r will b e i n c r e a s e d also, w i t h
c o r r e s p o n d i n g a d j u s t m e n t of the ceiling u p t o w h i c h g r a d u a t e d c o n t r i b u t i o n s a r e
p a i d . U n d e r t h e s e p r o p o s a l s t h e r e a c t i o n of t h e c o n t r i b u t i o n i n c o m e t o i n c r e a s e d
e a r n i n g s w o u l d t h e n n o t b e m u c h less b u o y a n t t h a n t h a t u n d e r t h e p l a n p r e v i o u s l y
c i r c u l a t e d t o t h e C a b i n e t . I n o r d e r , h o w e v e r , t o afford a basis of c o m p a r i s o n , all
t h e figures given in A p p e n d i x C a s s u m e t h a t e a r n i n g s a n d benefit r a t e s r e m a i n
s t a b l e a n d , t h e r e f o r e , t h o s e in t h e last t h r e e c o l u m n s differ from t h o s e in C. (57) 165.
10. T a k i n g t h e b r o a d e r v i e w , b u i l d i n g a g r a d u a t e d c o n t r i b u t o r y p e n s i o n s
s c h e m e o n t h e p r e - e x i s t i n g flat r a t e b a s e , w i t h o u t e r o s i o n of t h a t b a s e , e n a b l e s u s
if w e w i s h t o p r e s e r v e — f o r s o m e y e a r s at a n y r a t e — a clear d i s t i n c t i o n b e t w e e n
t h e b a s i c flat r a t e s c h e m e w h i c h is s u b s i d i s e d (by E x c h e q u e r s u p p l e m e n t a n d b y
deficit financing) a n d implicitly g u a r a n t e e d a g a i n s t large rises i n t h e c o s t of living,
and the graduated superstructure where unsubsidised and unloaded contributions
will b e w h o l l y a p p l i e d o n a n a c t u a r i a l b a s i s t o t h e s u p p l e m e n t a r y p e n s i o n s . I
suggest t h a t t h e r e a r e c o g e n t r e a s o n s , q u i t e a p a r t f r o m t h e n e e d f o r sensible
c o n t r a c t i n g - o u t a r r a n g e m e n t s , w h y w e s h o u l d w i s h t o e s t a b l i s h a n d p r e s e r v e this
distinction. A n y s c h e m e s u c h as t h a t c o n t e m p l a t e d in C. (57) 165 w h i c h m e r g e s
t h e b a s i c a n d t h e g r a d u a t e d e l e m e n t s of S t a t e i n s u r a n c e , so t h a t p a r t of t h e g r a d e d
c o n t r i b u t i o n s h a s t o b e a p p r o p r i a t e d a w a y f r o m g r a d e d p e n s i o n s a n d i n aid of t h e
flat r a t e p e n s i o n , is a s u b s t a n t i a l s t e p i n t h e d i r e c t i o n of t h e L a b o u r P a r t y P l a n
c o n c e p t i o n of a c o m p l e t e m e r g i n g of t h e finances of State i n s u r a n c e , in w h i c h t h e
h i g h e r - p a i d w o r k e r subsidises t h e l o w e r a n d t h e State subsidises t h e l o t a n d
g u a r a n t e e s b o t h t h e b a s i c a n d t h e g r a d e d p e n s i o n a g a i n s t inflation. T h e r e s e e m s t o
m e t o b e a serious d a n g e r t h a t w e s h o u l d t h e r e b y p r e c i p i t a t e t h a t f u r t h e r s t e p
(viz. t h e g u a r a n t e e of t h e g r a d e d as well as t h e b a s i c p e n s i o n a g a i n s t inflation) w h i c h ,
b y evincing a G o v e r n m e n t s u r r e n d e r t o t h e forces of inflation, w o u l d r e m o v e t h e
last p s y c h o l o g i c a l b a r r i e r s t o r u n a w a y inflation. If so, this is t o o h i g h a price"
to p a y , p a r t i c u l a r l y a t this j u n c t u r e , for t h e d u b i o u s fiscal a d v a n t a g e s s u c h a s c h e m e
m i g h t i n c e r t a i n c o n d i t i o n s h a v e o v e r t h a t p u t f o r w a r d w i t h this p a p e r .
This
latter h a s u n d o u b t e d l y t h e a d v a n t a g e in t h e s h o r t e r t e r m . Its yield i n c o n t r i b u t i o n s
is i m m e d i a t e l y g r e a t e r a n d w o u l d benefit s u b s t a n t i a l l y a l t h o u g h n o t p e r h a p s e q u a l l y
b y i n c r e a s e s in e a r n i n g s . M o r e o v e r , it w o u l d l e a v e the w a y o p e n in f u t u r e for
t h e G o v e r n m e n t , u n c o m m i t t e d , t o m o v e e i t h e r in t h e direction of a g r e a t e r m e r g i n g
of the b a s i c a n d g r a d e d S t a t e p e n s i o n s , o r n o t , as the t h e n c i r c u m s t a n c e s m i g h t
dictate. T h e r e is also t h e r e l a t e d p o i n t t h a t t h e necessity for i n c r e a s i n g t h e flat r a t e
c o n t r i b u t i o n w h e n e v e r p e n s i o n r a t e s a r e r a i s e d i m p o s e s a m e a s u r e of social
discipline w h i c h w o u l d b e l a c k i n g f r o m t h e s c h e m e envisaged i n C . (57) 165. I t
m u s t b e b o r n e i n m i n d t h a t a n y s c h e m e in w h i c h i n c o m e r e a c t s s h a r p l y t o h i g h l y
i n f l a t i o n a r y c o n d i t i o n s m u s t , w i t h o u t t h e s o r t of r e s t r a i n t w h i c h is i m p o s e d b y t h e
flat r a t e c o n t r i b u t i o n , positively p r o v o k e c l a i m s for higher p e n s i o n s b y r e a s o n of
t h e l a r g e excess of i n c o m e over e x p e n d i t u r e w h i c h c a n b e g e n e r a t e d b y s u c h
conditions a n d which pensioners k n o w to be available.
11. T h e d e c i s i o n t o c h a r g e a m i n i m u m c o n t r i b u t i o n h a s v e r y i m p o r t a n t effects
o n the finances of t h e s c h e m e . A n o v e r l o a d t o w a r d s b a c k service will t h e n b e p a i d
b y all c o n t r i b u t o r s a n d in t o t a l t h e i n c o m e of t h e s c h e m e will b e c o n s i d e r a b l y
i n c r e a s e d . T h e E x c h e q u e r c o n t r i b u t i o n w o u l d r e m a i n at o n e - s e v e n t h of t h e b a s i c
N a t i o n a l I n s u r a n c e c o n t r i b u t i o n i n s t e a d of a t one-fifth, as s u g g e s t e d in t h e earlier
plan. N o overload would be charged o n the graduated contributions which thus
b e c o m e c a p a b l e of p r e s e n t a t i o n as a fully a c t u a r i a l c o n t r i b u t i o n yielding v a l u e for
m o n e y . T h e n e w s c h e m e will h a v e t h e a d v a n t a g e of a p p e a r i n g t o be a s u p p l e m e n t
t o the e x i s t i n g s c h e m e i n s t e a d of a s u b s t i t u t e for it.
QUINQUENNIAL
CONTRIBUTION
INCREASES
12. I h a v e c o n s i d e r e d w h e t h e r it w o u l d b e a p p r o p r i a t e in v i e w of t h e
contribution arrangements proposed above to impose regular quinquennial
increases o n t h e r a t e of c o n t r i b u t i o n t o w a r d s l i q u i d a t i n g t h e b a c k - s e r v i c e liabilities
of the f l a t - r a t e s c h e m e . I n this c o n t e x t i n c r e a s e s o n t h e m i n i m u m c o n t r i b u t i o n a n d
increases o n t h e g r a d u a t e d c o n t r i b u t i o n p r e s e n t different p r o b l e m s . T o i n c r e a s e
t h e g r a d u a t e d c o n t r i b u t i o n w i t h o u t a n y c o r r e s p o n d i n g r e t u r n in p e n s i o n e n t i t l e m e n t
w o u l d b e o p e n t o o b j e c t i o n in t h a t after t h e first five years it w o u l d n o l o n g e r b e
possible t o c l a i m t h a t t h e r e t u r n f o r t h e g r a d u a t e d c o n t r i b u t i o n w a s v a l u e for
m o n e y . T h e r e is t h e f u r t h e r p o i n t t h a t p e r s o n s c o v e r e d b y c o n t r a c t i n g - o u t s c h e m e s
w o u l d e i t h e r h a v e t o b e m a d e t o p a y after t h e first five y e a r s a small g r a d u a t e d
c o n t r i b u t i o n u n d e r t h e S t a t e s c h e m e for w h i c h t h e y received n o benefit, o r w o u l d
b e e x c u s e d t h e e x t r a c o n t r i b u t i o n a n d so a v o i d a s u b v e n t i o n t o t h e i r flat r a t e
benefits w h i c h t h e y o u g h t t o p a y in c o m m o n w i t h p e r s o n s fully in t h e S t a t e s c h e m e .
I t seems t o m e p r e f e r a b l e for these r e a s o n s n o t t o i m p o s e q u i n q u e n n i a l increases
o n the graduated contribution. T h e s a m e objections d o not apply to regular
increases o n t h e m i n i m u m c o n t r i b u t i o n ; t h e r e is i n d e e d a p r e c e d e n t for this in t h e
d e c e n n i a l increases of c o n t r i b u t i o n s w i t h o u t i n c r e a s e of benefits laid d o w n u n d e r
t h e o r i g i n a l C o n t r i b u t o r y P e n s i o n s A c t of 1925. T h e s c h e m e in A p p e n d i x A
t h e r e f o r e p r o v i d e s for f o u r e q u a l increases in t h e m i n i m u m N a t i o n a l I n s u r a n c e
c o n t r i b u t i o n at q u i n q u e n n i a l i n t e r v a l s , e a c h of w h i c h w o u l d involve a n i n c r e a s e i n
t h e m i n i m u m c o n t r i b u t i o n of s i x p e n c e a side.
SCOPE A N D BASIS O F G R A D U A T E D
BENEFITS
13. T h e p r o p o s a l s i n t h e A p p e n d i c e s p r o v i d e for g r a d u a t e d l o n g - t e r m benefits,
i.e., s u p e r a n n u a t i o n , w i d o w h o o d o v e r 60, a n d l o n g - t e r m invalidity (which i s , i n
effect, a p r e m a t u r e r e t i r e m e n t p e n s i o n ) , b u t r e t a i n a t flat r a t e s s h o r t - t e r m benefits
a n d benefits for w i d o w s u n d e r 60. T h e r e is a n o b v i o u s distinction b e t w e e n l o n g ­
t e r m benefits for p e r m a n e n t c o n d i t i o n s a n d s h o r t - t e r m benefits w h i c h a r e i n t e n d e d ,
in t h e m a i n , t o act as a s t o p - g a p . T h e g r a d u a t i o n of sickness a n d u n e m p l o y m e n t
benefits w o u l d raise a d m i n i s t r a t i v e p r o b l e m s , b u t t h e m a i n justification for leaving
t h e m a t a flat r a t e is t h a t t h e n e w s c h e m e w o u l d essentially b e o n e for e n a b l i n g
i m p r o v e d p e n s i o n p r o v i s i o n t o b e m a d e a n d t h a t , a c c o r d i n g l y , t h e w h o l e of any
graduated contribution which could be reasonably exacted from contributors should
b e d e v o t e d , i n t h e p r e s e n t e c o n o m i c a n d d e m o g r a p h i c o u t l o o k , t o p r o v i s i o n f o r old
age. F u r t h e r , a s s i g n m e n t of p a r t of t h e g r a d u a t e d c o n t r i b u t i o n t o s h o r t - t e r m
benefits m i g h t increase e x p e n d i t u r e f r o m t h e F u n d i n t h e early y e a r s of the s c h e m e
b y u p t o £ 4 0 millions a y e a r . A f u r t h e r c o m p l i c a t i o n is t h a t t o m a k e c u r r e n t benefit
d e p e n d o n e a r n i n g s in a necessarily fairly r e m o t e p a s t p e r i o d w o u l d i n t r o d u c e a
f u r t h e r f o r t u i t o u s e l e m e n t i n t o benefit c a l c u l a t i o n s . T h e r e is also t h e r i s k of
p r e s s u r e for t h e i n t r o d u c t i o n of g r a d u a t e d benefits i n t o c o m p a r a b l e aspects of the
I n d u s t r i a l Injuries s c h e m e w i t h a f u r t h e r r e a c t i o n o n w a r p e n s i o n s . I r e c o g n i s e
t h a t t h e T . U . C . a t t a c h i m p o r t a n c e t o t h e idea t h a t all t h e benefits of N a t i o n a l
I n s u r a n c e — s h o r t - t e r m as well as l o n g — s h o u l d b e o n t h e s a m e basis, a n d t h a t
c o n s e q u e n t l y t h e L a b o u r P a r t y m a y b e e x p e c t e d t o p r o d u c e p l a n s for r e l a t i n g the
s h o r t - t e r m benefits also t o e a r n i n g s . B u t t h e r e a s o n s I h a v e given c o n v i n c e m e
t h a t w e s h o u l d n o t a t t e m p t to c o m p e t e in this field.
14. . T h e p r o p o s a l s i n t h e A p p e n d i c e s also d o n o t p r o v i d e a n y benefit a b o v e
t h e s t a n d a r d r a t e for t h o s e w i d o w s u n d e r 60 w h o qualify for benefit u n d e r the
present National Insurance Scheme—broadly those with children and those
w i d o w e d w h e n over 50. M y r e a s o n s h e r e a r e n o t so m u c h t h e cost, w h i c h w o u l d be
fairly s m a l l , b u t t h e difficulty of i n c o r p o r a t i n g " v a l u e for m o n e y " w h i c h I t h i n k
s h o u l d b e t h e basis of t h e g r a d u a t e d c o n t r i b u t i o n s a n d benefits, w i t h t h e rule w h i c h
h a s b e e n d e l i b e r a t e l y a d o p t e d i n r e l a t i o n t o w i d o w s u n d e r 60 in N a t i o n a l I n s u r a n c e
of p e n s i o n i n g o n l y t h o s e w h o a r e prima facie u n l i k e l y to b e able t o c o m p e t e i n the
e m p l o y m e n t field. I a m d r i v e n t o t h e conclusion t h a t u n l e s s this principle, w h i c h
h a s n o w f o u n d w i d e a c c e p t a n c e , w e r e a b r o g a t e d (at c o n s i d e r a b l e expense), it is n o t
p o s s i b l e t o graft strictly i n s u r a n c e s u p p l e m e n t s o n t o t h e p r e s e n t N a t i o n a l
I n s u r a n c e p r o v i s i o n s for w i d o w s u n d e r 60.
15. T h e principle t h a t a b o v e t h e level of the s t a n d a r d s u b s i s t e n c e provision
it is a p p r o p r i a t e for c o n t r i b u t o r s t o receive n o m o r e , b u t n o less, t h a n a b r o a d
a c t u a r i a l r e t u r n for their c o n t r i b u t i o n s involves a scale of benefits w i t h n o weighting
a g a i n s t t h e y o u n g e n t r a n t a n d w i t h a large n u m b e r of steps o r possible r a t e s of
benefit a c c o r d i n g to t h e c o n t r i b u t o r ^ a v e r a g e e a r n i n g s a n d age at e n t r y .
I l l u s t r a t i o n s of s u c h a scale a r e i n c l u d e d in A p p e n d i x A .
FINANCIAL RESULT OF ABOVE
PROPOSALS
16. T h e result of all these p r o p o s a l s which, for t h e r e a s o n s set o u t a b o v e ,
I believe t o b e s o u n d w o u l d b e , h o w e v e r , t o p r o d u c e a s u r p l u s in the first y e a r of
t h e s c h e m e of a b o u t £140 millions.
FURTHER MODIFICATIONS OF SCHEME
17. T h i s w o u l d e n s u r e t h a t t h e i n t r o d u c t i o n of c o n t r a c t i n g o u t w o u l d n o t
e n d a n g e r t h e finances of t h e s c h e m e . I n o u r earlier d i s c u s s i o n s reference w a s
m a d e t o a guess t h a t c o n t r a c t i n g o u t m i g h t p e r h a p s a t t h e o u t s e t r e d u c e t h e r e v e n u e s
of t h e s c h e m e by as m u c h as £ 5 0 millions a year, t h o u g h this w o u l d , of c o u r s e ,
u l t i m a t e l y b e offset b y a c o r r e s p o n d i n g r e d u c e d liability for p e n s i o n s . A p a r t ,
h o w e v e r , f r o m t h e s e c o n s i d e r a t i o n s , a r e d u c t i o n of £50 millions a y e a r in i m m e d i a t e
r e v e n u e s w o u l d still l e a v e t h e s c h e m e in its n e w f o r m i n s u r p l u s in t h e first y e a r
a n d for a few y e a r s s u b s e q u e n t l y . T h e figure of £ 5 0 millions is necessarily
speculative, p a r t i c u l a r l y for t h e f u t u r e , a n d m y d i s c u s s i o n s w i t h t h o s e e x p e r i e n c e d
in this field h a v e r e v e a l e d a b o d y of o p i n i o n w h i c h c o n s i d e r s it a n excessive e s t i m a t e
a t a n y r a t e for t h e earlier y e a r s . I n v i e w of this a c o n s t a n t a l l o w a n c e of £50 m i l l i o n s
loss of r e v e n u e d u e t o c o n t r a c t i n g o u t h a s b e e n m a d e i n t h e a p p r o p r i a t e T a b l e s i n
Appendix C.
18, I t is also p o s s i b l e , w i t h o u t o c c a s i o n i n g financial difficulty, t o m a k e a
f u r t h e r d e p a r t u r e f r o m t h e p r o p o s a l s i n C. (57) 165. I n t h a t p a p e r it w a s a s s u m e d
t h a t t h e o p t i o n u n d e r t h e existing s c h e m e u n d e r w h i c h m a r r i e d w o m e n in
employment can c o m e into insurance or n o t as they wish w o u l d b e w i t h d r a w n .
If w e w e r e s t a r t i n g de novo I t h i n k t h e r e w o u l d b e m u c h t o be said for this
p r o p o s a l t o a v o i d offering a n o p t i o n w h i c h is n o t e a s y t o justify i n logic. B u t
m a r r i e d w o m e n h a v e h a d this o p t i o n since t h e b e g i n n i n g of t h e p r e s e n t N a t i o n a l
I n s u r a n c e s c h e m e . T h e r e w o u l d b e difficulties in w i t h d r a w i n g it at t h e m o m e n t
at w h i c h , u n d e r t h e n e w p r o p o s a l s , t h e i r h u s b a n d s ' c o n t r i b u t i o n m i g h t b e b e i n g
i n c r e a s e d . I p r o p o s e , t h e r e f o r e , to l e a v e this o p t i o n in b e i n g . T h i s w o u l d r e d u c e
t h e s u r p l u s o n t h e F u n d b y a f u r t h e r £ 5 0 millions a y e a r . T h i s still leaves a s u r p l u s
in t h e early y e a r s c o m p a r i n g f a v o u r a b l y w i t h a s c h e m e s t a r t i n g f r o m a l o w e r b a s e
of c o n t r i b u t i o n s .
19. I t will b e s e e n f r o m line 9 of A p p e n d i x C t h a t this p a r t i a l l y g r a d u a t e d
s c h e m e w i t h c o n t r a c t i n g o u t is at all p o i n t s s u b s t a n t i a l l y m o r e f a v o u r a b l e t o t h e
Exchequer t h a n the earlier outline plan.
20. A f u r t h e r effect of t h e s e p r o p o s a l s is t o m a k e t h e w h o l e of t h e
c o n t r i b u t i o n s u n d e r t h e g r a d u a t e d p a r t of t h e s c h e m e a v a i l a b l e for a d d i t i o n a l
s u p e r a n n u a t i o n p r o v i s i o n . A t t h e m a x i m u m t h i s leaves a c o n t r i b u t i o n of 45. a
w e e k a side a v a i l a b l e for s u p e r a n n u a t i o n a n d a s s o c i a t e d l o n g - t e r m benefits as
c o m p a r e d w i t h 2s. \0d. u n d e r t h e earlier s c h e m e . A s a r e s u l t t h e m a x i m u m
a d d i t i o n a l p e n s i o n for a single p e r s o n c o m e s t o 60.S. a w e e k o n t o p of t h e b a s i c
50s. or £5 10s. a w e e k i n a l l — £ 7 m a r r i e d — a g a i n s t 35s. a w e e k o n t o p of t h e s a m e
basic figure, or £ 4 5s. a w e e k in a l l — £ 5 15s. m a r r i e d — u n d e r t h e earlier s c h e m e .
2 1 . T h e p r o v i s i o n s w i t h r e s p e c t t o c o n t r a c t i n g o u t a r e fully set o u t i n
A p p e n d i x B . A s t h e r e s u l t of f u r t h e r c o n s i d e r a t i o n a n d of discussions w i t h t h e
o u t s i d e interests a b o v e m e n t i o n e d , it is clear t h a t it is p r a c t i c a b l e to p r o v i d e t h e
r i g h t t o c o n t r a c t o u t o n this basis in r e s p e c t of f u t u r e as w e l l as of existing s c h e m e s .
N o t o n l y w o u l d it b e u n f a i r a n d d i s c o u r a g i n g t o initiative to refuse this p r i v i l e g e
t o f u t u r e s c h e m e s , b u t t o a t t e m p t t o d o s o w o u l d also involve m u c h p r a c t i c a l
difficulty.
F o r e x a m p l e , it s o m e t i m e s h a p p e n s t h a t a n existing s c h e m e is
substantially remodelled and p u t on a new basis. This may be advantageous to
all c o n c e r n e d b u t t h e r e s u l t is s o m e t h i n g w h i c h is strictly a n e w s c h e m e . I t w o u l d
b e q u i t e i m p o s s i b l e t o refuse t h e r i g h t t o c o n t r a c t out t o s u c h a s c h e m e if o t h e r w i s e
eligible.
GENERAL POLICY
CONSIDERATIONS
22. T h e p r o p o s a l s c o n t a i n e d i n A p p e n d i c e s A a n d B , t h o u g h i n v o l v i n g a n
i n c r e a s e in a d m i n i s t r a t i v e c o m p l e x i t y a n d d e m a n d s o n staff as c o m p a r e d w i t h the
present National Insurance scheme, are practicable. F o r the reasons which I gave
t o t h e C a b i n e t o n 2 n d A u g u s t ( C . C . (57) 61st C o n c l u s i o n s , M i n u t e 4), t o w h i c h I
a d h e r e , I r e g a r d t h e p r o p o s a l s i n A p p e n d i x A b y t h e m s e l v e s as u n a c c e p t a b l e o n
g r o u n d s b o t h of p r i n c i p l e a n d of p r a c t i c a l politics.
2 3 . W h i l e t h e p r o p o s a l s as m o d i f i e d b y t h o s e i n A p p e n d i x B d o n o t offend
as seriously, b y r e a s o n of t h e i r i n c l u s i o n of c o n t r a c t i n g o u t , a g a i n s t t h e p r i n c i p l e s
of o u r P a r t y , I s h o u l d b e less t h a n f r a n k w i t h m y c o l l e a g u e s if, in s u b m i t t i n g t h e m
t o t h e C a b i n e t , I d i d n o t m a k e it clear t h a t , t h o u g h i n m y view t h e y r e p r e s e n t t h e
best w a y of giving effect t o a S t a t e g r a d u a t e d s c h e m e , t h e y r e m a i n politically
u n a t t r a c t i v e . It is n o t p o s s i b l e in a n y S t a t e s c h e m e of this c h a r a c t e r t o a v o i d
c o m p a r i s o n w i t h t h e C r o s s m a n p l a n , a n d w e s h o u l d b e deceiving ourselves if w e
t h o u g h t t h a t i n c o m p a r i s o n w i t h t h a t p l a n t h e s e p r o p o s a l s w o u l d exercise m u c h
popular appeal.
24. T h e G r o s s m a n p l a n , w i t h all its o b v i o u s defects, d o e s p r o m i s e u l t i m a t e l y
half p a y o n r e t i r e m e n t in t h e long r u n t o t h e w o r k e r i n t h e m i d d l e r a n g e of e a r n i n g s .
F o r e x a m p l e , a w o r k e r w h o s e a v e r a g e w e e k l y e a r n i n g s t h r o u g h o u t life a r e £12 a
w e e k w o u l d r e t i r e w h e n t h e C r o s s m a n s c h e m e h a s r e a c h e d full fruition o n £7 a
v/eek. A w o r k e r o n £20 a w e e k similarly w o u l d receive over £9 a w e e k . T h e
p r e s e n t p l a n offers a p e n s i o n of £7 a w e e k a t t h e m a x i m u m at t h e e n d of a full
w o r k i n g life. N o r is it p o s s i b l e to d i s t i n g u i s h t h e s e p r o p o s a l s f r o m t h o s e i n t h e
C r o s s m a n p l a n o n t h e b a s i s t h a t they m a k e g r e a t e r u s e of t h e p r i n c i p l e s of free
e n t e r p r i s e . T h e y c a n n o t b u t l o o k like " C r o s s m a n a n d s o d a . "
2 5 . T h e m o d e s t n a t u r e of t h e s e p r o p o s a l s derives f r o m t h e d i l e m m a w h i c h
faces a C o n s e r v a t i v e G o v e r n m e n t in e x t e n d i n g well a b o v e s u b s i s t e n c e level a S t a t e ­
a d m i n i s t e r e d s c h e m e of N a t i o n a l I n s u r a n c e . W e all of us d e s i r e t o k e e p a n y
g r a d u a t e d S t a t e s c h e m e as s m a l l an a n i m a l as possible, b o t h b e c a u s e w e dislike
i n t r u d i n g f u r t h e r t h a n w e m u s t i n t o t h e s p h e r e of p r i v a t e e n t e r p r i s e a n d b e c a u s e
w e fear t h e e x t e n s i o n of State liability, a n d c o n s e q u e n t l y t h e field of political
p r e s s u r e , a n y h i g h e r u p t h e p e n s i o n scale t h a n is necessary.
26. T h e o r i g i n a l p r o p o s a l s for a g r a d u a t e d s c h e m e w e r e n o t p u t f o r w a r d by
m y D e p a r t m e n t n o r p r i m a r i l y a s a m e a s u r e of social r e f o r m , b u t , i n m y view,
d e r i v e d f r o m t h e n a t u r a l desire of t h e T r e a s u r y , w h i c h w e all s h a r e , t o see s o m e
i m p r o v e m e n t i n t h e financial o u t l o o k of t h e N a t i o n a l I n s u r a n c e s c h e m e .
The
o u t l o o k for t h a t s c h e m e h a s , h o w e v e r , s o m e t i m e s been e x a g g e r a t e d , inter
alia,
t h r o u g h t h e b a s i n g of forecasts o n u n d u l y pessimistic a s s u m p t i o n s as t o t h e r a t e s
of u n e m p l o y m e n t . A s h o w e v e r t h e case for a S t a t e g r a d u a t e d s c h e m e is in large
m e a s u r e b a s e d o n financial c o n s i d e r a t i o n s , t h e decision t o i n t r o d u c e o n e will be
largely affected b y w h e t h e r it is w o r t h w h i l e t o i n t r o d u c e a n u n p o p u l a r Bill in
1 9 5 7 / 8 ' i n o r d e r t o i m p r o v e t h e c o n d i t i o n of t h e N a t i o n a l I n s u r a n c e F u n d for a
few y e a r s after 1960. F o r a d m i n i s t r a t i v e r e a s o n s it is n o t p o s s i b l e t o i n t r o d u c e
g r a d u a t e d c o n t r i b u t i o n s before t h a t y e a r .
27. O n t h e n e w basis of t h e 17s. 6d. c o n t i b u t i o n t o b e i n t r o d u c e d a t t h e
b e g i n n i n g of F e b r u a r y , 1958, u n d e r n e x t session's Bill a n d w i t h t h e c u r r e n t level
of u n e m p l o y m e n t , t h e deficit o n t h e N a t i o n a l I n s u r a n c e F u n d falling o n the
E x c h e q u e r (exclusive of t h e £127 millions E x c h e q u e r S u p p l e m e n t t o c o n t r i b u t i o n s )
is n o t likely t o e x c e e d £170 millions i n 1 9 6 6 / 6 7 . I n view of t h e g r e a t i n c r e a s e in
t h e n u m b e r of r e t i r e m e n t p e n s i o n e r s f o r e c a s t o v e r t h e n e x t few y e a r s , t h o u g h large,
this is n o t necessarily a n u n m a n a g e a b l e o r a l a r m i n g figure. A n d it m a y well p r o v e
a n o v e r e s t i m a t e . I t is w o r t h recalling t h a t t h e G o v e r n m e n t a c t u a r y in 1946 forecast
t h e t o t a l cost t o t h e E x c h e q u e r of N a t i o n a l I n s u r a n c e in 1958 as £191 millions.
D e s p i t e o r p e r h a p s b e c a u s e of the i n t e r v e n i n g inflation it is n o w forecast as
£137 millions.
28. O n t h e o t h e r side of t h e a c c o u n t t h e E x c h e q u e r will f r o m this m o n t h
o n w a r d s b e o b t a i n i n g a n e x t r a £ 4 0 m i l l i o n s m a k i n g £80 millions in all t o w a r d s the
cost of the N a t i o n a l H e a l t h Service f r o m t h e c o n t r i b u t o r s t o t h e N a t i o n a l I n s u r a n c e
F u n d . I n t h e s e c i r c u m s t a n c e s a total cost t o t h e E x c h e q u e r of t h e o r d e r i n d i c a t e d
i n t h e m i d d l e sixties n e e d n o t necessarily c a u s e us a t p r e s e n t very g r e a t e x c i t e m e n t ,
p a r t i c u l a r l y w h e n a c c o u n t is t a k e n of t h e i n c r e a s i n g n a t i o n a l r e v e n u e w h i c h t h e
m a s s i v e i n v e s t m e n t of r e c e n t y e a r s entitles u s t o e x p e c t . It is also w o r t h n o t i n g
t h a t if p r o v i s i o n for t h e old, t h e sick a n d t h e u n e m p l o y e d w e r e n o t m a d e t h r o u g h
a c o n t r i b u t o r y s c h e m e it w o u l d h a v e i n p r a c t i c e t o b e m a d e in o t h e r w a y s involving
a larger direct E x c h e q u e r c h a r g e , e.g., b y w a y of n a t i o n a l assistance.
29. W h i l e t h e r e f o r e in a c c o r d a n c e w i t h t h e C a b i n e t d e c i s i o n I s u b m i t
p r o p o s a l s for S t a t e g r a d u a t e d s c h e m e s of N a t i o n a l I n s u r a n c e , a n d w h i l e t h e o n e
i n A p p e n d i x B is, b y r e a s o n of its i n c o r p o r a t i o n of c o n t r a c t i n g o u t , o n e w h i c h it
m a y well b e p o s s i b l e to i n d u c e t h e p r e s e n t H o u s e of C o m m o n s t o a c c e p t , I w o u l d
n o t wish t o l e a v e m y c o l l e a g u e s u n d e r t h e i m p r e s s i o n t h a t i n m y j u d g m e n t it
a m o u n t s o n e i t h e r political or social policy g r o u n d s t o a n effective a l t e r n a t i v e to
C r o s s m a n . S u c h a n a l t e r n a t i v e w o u l d in m y view h a v e t o b e b a s e d o n a g r e a t e r
r e l i a n c e o n a m o d e r n a p p r o a c h t o t h e d u t y of e m p l o y e r s t o w a r d s t h e i r e m p l o y e e s
(such as is a l r e a d y a c e p t e d in respect of o n e in every three) arid a g r e a t e r u s e of the
m e c h a n i s m of free e n t e r p r i s e .
J. A . B.-C.
Ministry of Pensions
16th September,
and National
1957.
Insurance,
W.C. 2, APPENDIX
A
Particulars of P r o p o s e d G r a d u a t e d S c h e m e
(excluding provision for contracting-out)
1.
T h e following is a n o u t l i n e of a s c h e m e o n t h e p r i n c i p l e s of t h e p r e c e d i n g
note.
Coverage
2. T h e p r e s e n t u n i v e r s a l N a t i o n a l I n s u r a n c e c o v e r a g e for flat r a t e s w o u l d b e
r e t a i n e d . M i n i m u m c o n t r i b u t i o n s w o u l d c o n t i n u e t o b e p a y a b l e b y all p e r s o n s
e m p l o y e d , self-employed, a n d n o n - e m p l o y e d , c o v e r e d b y t h e p r e s e n t s c h e m e at t h e
a p p r o p r i a t e flat r a t e s t h e n r u l i n g . S u c h c o n t r i b u t i o n s w o u l d give title t o t h e
p r e s e n t r a n g e of benefits at t h e s t a n d a r d r a t e s . I n a d d i t i o n , " e m p l o y e d " p e r s o n s
a n d their e m p l o y e r s w o u l d e a c h be liable t o a c o n t r i b u t i o n of 4 p e r c e n t , of t h a t
slice of e a r n i n g s lying b e t w e e n t h e a m o u n t t o w h i c h t h e m i n i m u m c o n t r i b u t i o n is
r e l a t e d a n d a ceiling. T h i s g r a d u a t e d c o n t r i b u t i o n w o u l d give title t o a d d i t i o n a l
p e n s i o n benefits. T h e N a t i o n a l H e a l t h Service c o n t r i b u t i o n w o u l d b e a d d e d , as
a t p r e s e n t , t o t h e w h o l e N a t i o n a l I n s u r a n c e c o n t r i b u t i o n for c o l l e c t i o n p u r p o s e s ,
b u t w o u l d n o t e n t e r i n t o t h e financial s t r u c t u r e of N a t i o n a l I n s u r a n c e .
Contributions
3. Minimum
contributions.—These
w o u l d b e t h e t o t a l w e e k l y r a t e s for
N a t i o n a l I n s u r a n c e p u r p o s e s ( e x c l u d i n g t h e N a t i o n a l H e a l t h Service c o n t r i b u t i o n
w h i c h w o u l d r e t a i n its p r e s e n t u n e q u a l d i s t r i b u t i o n b e t w e e n e m p l o y e r a n d
employee) r u l i n g after t h e a p p r o a c h i n g i n c r e a s e i n benefit r a t e s . T h i s m i n i m u m
N a t i o n a l I n s u r a n c e a n d I n d u s t r i a l Injuries c o n t r i b u t i o n w o u l d b e d i v i d e d e q u a l l y
b e t w e e n e m p l o y e r a n d e m p l o y e e , involving a v e r y slight r e d u c t i o n in t h e e m p l o y e e ' s
s h a r e as it will b e in n e x t Session's Bill a n d a c o r r e s p o n d i n g i n c r e a s e i n t h e
e m p l o y e e s s h a r e . T h i s is d u e t o a r e d i s t r i b u t i o n of t h e i n c i d e n c e of t h e c h a r g e for
m a t e r n i t y a n d d e a t h g r a n t o n a n e q u a l basis i n s t e a d of p l a c i n g a g r e a t e r s h a r e of
t h e cost of t h e s e m i n o r benefits o n t h e e m p l o y e e .
4.
T h e following table shows the result: —
TABLE I
MEN
Employee
N.I
N.H.S
Total minimum
contributions
s.
d.
7
1
11
9
Employer
WOMEN
Total
44
0
34
1
d.
10
8
34
8
2\
17
6
1
5.
7
d.
s.
11
15
Employee
Employer
s.
6
i
d.
54
04
s.
6
0
d.
7
6
6
9
Total
s.
d.
5*
12
34
1
11
4
14
3
5. T h e a b o v e c o n t r i b u t i o n s w o u l d t h e n c o n t i n u e t o r e p r e s e n t t h e c o n t r i b u t o r ^
t r a d i t i o n a l s h a r e of t h e a c t u a r i a l c o n t r i b u t i o n a p p r o p r i a t e t o a n e n t r a n t a t a g e 16
for t h e s t a n d a r d benefits, t o g e t h e r w i t h a n o v e r l o a d t o w a r d s b a c k - s e r v i c e , a n d
w o u l d b e p a y a b l e at all levels of e a r n i n g s s u b j e c t t o r u l e s a b o u t e m p l o y m e n t s
which are subsidiary or too inconsiderable to attract insurance.
Graduated
Contributions
6. T h e g r a d u a t e d c o n t r i b u t i o n of 4 p e r cent, a side w o u l d b e g i n t o b e p a y a b l e
o n w e e k l y e a r n i n g s f r o m e m p l o y m e n t ( b u t n o t s e l f - e m p l o y m e n t ) a b o v e t h e figures
of £10 for m e n a n d £8 for w o m e n at w h i c h a p p r o x i m a t e l y t h e t o t a l m i n i m u m
N a t i o n a l I n s u r a n c e c o n t r i b u t i o n e q u a t e s w i t h 8 p e r cent, of e a r n i n g s .
This
c o n t r i b u t i o n w o u l d b e p a y a b l e o n t h e slice of e a r n i n g s u p t o a ceiling of £ 1 5 a w e e k
i n t h e case of m e n a n d £13 a w e e k in t h e case of w o m e n . T h e m a x i m u m w e e k l y
c o n t r i b u t i o n for t h e e m p l o y e e , i n c l u d i n g N a t i o n a l H e a l t h Service, w o u l d t h u s b e
135. 3\d. i n the case of m e n a n d lls. 6d. in t h e case of w o m e n . Of these m a x i m a ,
4y. in e a c h case r e p r e s e n t s t h e g r a d u a t e d p o r t i o n of t h e c o n t r i b u t i o n , a n d Is. A\d.
(Is. O^d. for w o m e n ) t h e H e a l t h Service c o n t r i b u t i o n .
Benefits
7. T h e
short-term
benefits
of
National
Insurance-sickness
and
u n e m p l o y m e n t — w i d o w s ' benefits for w i d o w s u n d e r 6 0 , I n d u s t r i a l Injuries benefits,
a n d t h e m i n o r benefits of N a t i o n a l I n s u r a n c e ( m a t e r n i t y benefit, g u a r d i a n ' s
a l l o w a n c e , a n d d e a t h g r a n t ) w o u l d r e m a i n at flat r a t e s in r e t u r n for t h e a p p r o p r i a t e
flat-rate c o n t r i b u t i o n . T h e g r a d u a t e d c o n t r i b u t i o n w o u l d give title t o a d d i t i o n a l
benefits o n r e t i r e m e n t ( i n c l u d i n g p r e m a t u r e r e t i r e m e n t o w i n g t o b r e a k d o w n i n
health) o n a n a c t u a r i a l basis. A m i n i m u m of five y e a r s ' c o n t r i b u t i o n s w o u l d b e
r e q u i r e d ; p e r s o n s r e a c h i n g p e n s i o n age w i t h i n five y e a r s after t h e s c h e m e b e g a n
w o u l d receive a r e f u n d of t h e g r a d u a t e d c o n t r i b u t i o n s p a i d b y t h e m a n d t h e i r
e m p l o y e r s unless t h e y c o n t i n u e d in e m p l o y m e n t , in w h i c h case t h e y w o u l d begin t o
b e e n t i t l e d t o a g r a d u a t e d a d d i t i o n t o their u l t i m a t e p e n s i o n o n c o m p l e t i n g five
y e a r s ' g r a d u a t e d c o n t r i b u t i o n s . T h e p e n s i o n p a y a b l e a b o v e t h e s t a n d a r d r a t e (plus
i n c r e m e n t s for d e f e r r e d r e t i r e m e n t , if any) w o u l d b e d e t e r m i n e d o n a n a c t u a r i a l
b a s i s b y t h e g r a d u a t e d c o n t r i b u t i o n s p a i d a n d d a t e of e n t r y i n t o t h e s c h e m e . T h e
following T a b l e gives i l l u s t r a t i v e e x a m p l e s b a s e d o n t h e a s s u m p t i o n t h a t t h e p e r s o n
c o n c e r n e d retires at age 65(60) b u t subject t o a d a p t a t i o n if h e c o n t i n u e s t o w o r k
after r e a c h i n g t h a t age.
TABLE I I
Examples of graduated pension in respect of contributions above the minimum.
MEN
Age last birthday at
start of scheme
16
17-19
20-22
23-25
26-28
29-31
32-34
35-38
39-42
43-47
48-53
54-59
60 and over
Employee's contribution
per £ of earnings
above £10 a week
Additional pension
per £1 of average
earnings above £10
d.
s.
d.
12
0
11
0
10
0
9
0
8
0
7
0
6
0
5
0
4
0
3
0
2
0
1
0
See note
5.
d.
60
0
55
0
50
0
45
0
40
0
35
0
30
0
25
0
20
0
15
0
10
0
5
0
See note
Employee^ contribution
per £ of earnings
above £8 a week
Additional pension
per £1 of average
earnings above £8
M a x i m u m additional
pension (£13
average earnings)
d.
s.
d
11
0
10
0
9
0
8
0
7
0
6
0
5
0
4
0
3
0
2
0
1
0
See note
s.
d.
55
0
50
0
45
0
40
0
35
0
30
0
25
0
20
0
15
0
10
0
5
0
See note
94
94
94
94
94
94
94
94
94
94
94
94
94
Maximum additional
pension (£15
average earnings)
WOMEN
Ag
Agee last
las t birthday
birthda y a t
start
star t of scheme
schem e
16
17-18
19-20
21-22
23-25
26-28
29-32
33-37
38-42
43-48
49-54
55 and over
94
94
94
94
94
94
94
94
94
94
94
94
NOTE.—Persons who are within 5 years of pension age at the start of the scheme will have the
option of going on in work for at least 5 years and having the appropriate pension, or taking a refund
at 65(60).
8. A s s u m i n g i n t r o d u c t i o n of t h e s c h e m e in t h e financial y e a r 1 9 6 0 - 6 1 , t h e first
g r a d u a t e d p e n s i o n s w o u l d c o m e i n t o p a y m e n t i n 1965 at a m a x i m u m r a t e ( w h e r e
e a r n i n g s h a d a v e r a g e d a t t h e ceiling or a b o v e since t h e s c h e m e b e g a n ) of 55s. Od.
a w e e k single, of w h i c h 5s. Od. w o u l d r e p r e s e n t t h e g r a d u a t e d e l e m e n t .
After
t w e n t y y e a r s , t h e g r a d u a t e d e l e m e n t w o u l d b e p r o d u c i n g m a x i m u m a d d i t i o n s of
15s. Od. a w e e k (single) t o t h e s t a n d a r d r a t e a n d t h e m a x i m u m g r a d u a t e d a d d i t i o n
of 6O5. Od. a w e e k for single m e n w o u l d b e r e a c h e d e a r l y i n t h e n e x t c e n t u r y .
Married
Women
9. T h e p r e s e n t r i g h t of a m a r r i e d w o m a n i n e m p l o y m e n t t o o p t o u t of h e r
s h a r e of t h e c o n t r i b u t i o n w o u l d c o n t i n u e in r e s p e c t of t h e w h o l e of h e r s h a r e of t h e
National Insurance contribution (apart from that portion allocated to Industrial
Injuries) a n d i n c l u d i n g t h e g r a d u a t e d p o r t i o n , if a n y . E m p l o y e r s w o u l d r e m a i n
liable f o r t h e i r s h a r e of t h e c o n t r i b u t i o n i n c l u d i n g t h e g r a d u a t e d p o r t i o n t o p r e v e n t ,
as at p r e s e n t , d i s c r i m i n a t i o n b e t w e e n e m p l o y e e s .
Financial Structure
and the Role of the
Exchequer
10. T h e E x c h e q u e r w o u l d s u p p l e m e n t t h e flat r a t e c o n t r i b u t i o n s a s a t p r e s e n t ,
t h e s u p p l e m e n t s b e i n g a t t h e existing r a t e of o n e - s e v e n t h of t h e t o t a l c o n t r i b u t i o n .
T h e r e w o u l d b e n o E x c h e q u e r s u p p l e m e n t in r e s p e c t of t h e g r a d u a t e d c o n t r i b u t i o n s .
11. P r o v i s i o n w o u l d also b e m a d e i n t h e legislation for i n c r e a s i n g t h e
m i n i m u m c o n t r i b u t i o n s for N a t i o n a l I n s u r a n c e p u r p o s e s (i.e., 15s. lOd. f o r e m p l o y e d
m e n a n d 125. lid. for e m p l o y e d w o m e n ) b y e q u a l stages a t f o u r q u i n q u e n n i a l
i n t e r v a l s u n t i l t h e y r e p r e s e n t e d 5 p e r cent, e a c h of e a r n i n g s of £ 1 0 a n d £ 8 a w e e k .
E a c h of t h e s e s t a g e s w o u l d i n v o l v e a n i n c r e a s e of Is. Od. o n t h e m i n i m u m N a t i o n a l
Insurance contribution divided equally between employer a n d employee.
The
p r o d u c t of t h e s e i n c r e a s e s w o u l d b e a p p l i e d t o w a r d s m e e t i n g t h e e m e r g i n g deficit o n
t h e flat r a t e p e n s i o n . T h e r e w o u l d b e n o i n c r e a s e s in t h e g r a d u a t e d c o n t r i b u t i o n s
for this p u r p o s e .
12. A t t h e b e g i n n i n g t h e r e w o u l d , o n t h e a b o v e financial b a s i s , b e a s u r p l u s
in t h e N . I . F u n d of e x p e n d i t u r e o v e r i n c o m e ( i n c l u d i n g t h e E x c h e q u e r S u p p l e m e n t
to c o n t r i b u t i o n s of £ 2 1 7 millions) a m o u n t i n g t o a b o u t £88 millions.
Administration
13. T h e c o l l e c t i o n of c o n t r i b u t i o n s r e l a t e d t o e a r n i n g s — w h a t e v e r t h e s c h e m e
— b y m e a n s of t h e existing s t a m p e d c a r d m e t h o d w o u l d b e u n e c o n o m i c a l b e c a u s e
of t h e i m m e n s e v a r i e t y of s t a m p s t h a t w o u l d b e r e q u i r e d , a n d i n c o n v e n i e n t t o
e m p l o y e r s . V e r i f i c a t i o n a n d e n f o r c e m e n t of t h e e x a c t liability w o u l d p r e s e n t
difficulties a n d t h e h i g h v a l u e of t h e s t a m p s t h a t w o u l d b e n e e d e d i n t h e u p p e r
r a n g e s is o p e n t o s e c u r i t y o b j e c t i o n s . T h e a l t e r n a t i v e of d i r e c t c o l l e c t i o n of
c o n t r i b u t i o n s f r o m e m p l o y e r s at i n t e r v a l s b y t h e M i n i s t r y of P e n s i o n s w o u l d m e a n
d u p l i c a t i n g , in l a r g e m e a s u r e , collection m a c h i n e r y a l r e a d y o p e r a t e d b y t h e I n l a n d
R e v e n u e . P r e l i m i n a r y e x a m i n a t i o n h a s s h o w n t h a t , w i t h s o m e e x p a n s i o n of staffs,
p a r t i c u l a r l y d u r i n g t h e t r a n s i t i o n a l stages, a c o n t r i b u t i o n of t h e k i n d u n d e r
c o n s i d e r a t i o n c o u l d b e collected b y t h e I n l a n d R e v e n u e m a c h i n e r y in p a r a l l e l
with P . A . Y . E . T h e clerical w o r k for e m p l o y e r s w o u l d b e b a l a n c e d — p e r h a p s m o r e
t h e n b a l a n c e d — b y t h e relief f r o m t h e w o r k of b u y i n g a n d affixing s t a m p s . T h e r e
w o u l d also b e relief of P o s t Office c o u n t e r s p a c e a n d staff, a n d o n t h e S t a t i o n e r y
Office i n s e c u r i t y p r i n t i n g .
14. T h e g r e a t m a j o r i t y of c o n t r i b u t o r s ( s o m e 20 million o u t of 24 million)
are w i t h i n t h e s c o p e of P . A . Y . E . F o r t h e r e m a i n d e r a n d p o s s i b l y f o r s o m e s p e c i a l
classes w i t h i n P . A . Y . E . s t a m p e d c a r d s w o u l d h a v e t o b e r e t a i n e d . T h o s e affected
w o u l d b e t h o s e l i a b l e o n l y t o flat r a t e s of N a t i o n a l I n s u r a n c e c o n t r i b u t i o n , m a i n l y
the self-employed a n d the non-employed.
15. A s u n d e r a n y g r a d e d s c h e m e , n e w p r o b l e m s of e n f o r c e m e n t
e m e r g e a n d a r e v i e w of existing m e t h o d s of i n s p e c t i o n w o u l d h a v e
u n d e r t a k e n , p o s s i b l y r e s u l t i n g in s o m e a d d i t i o n of staff.
would
to be
16. P r o b l e m s w o u l d arise in c o n n e c t i o n w i t h w o r k e r s w h o h a v e m o r e t h a n
o n e e m p l o y e r in a w e e k a n d w h o s e e a r n i n g s i n t o t a l c a m e a b o v e £ 1 0 a w e e k . I n
s o m e r e s p e c t s s u c h p e r s o n s a r e c o m p a r a b l e t o self-employed p e r s o n s .
Statistics
17. I m p o r t a n t statistical m a t e r i a l , u s e d i n p a r t i c u l a r b y t h e G o v e r n m e n t
A c t u a r y a n d by t h e M i n i s t r y of L a b o u r , is b a s e d o n t h e p r e s e n t s y s t e m of collecting
N a t i o n a l I n s u r a n c e c o n t r i b u t i o n s . M e t h o d s of e n s u r i n g t h a t t h i s w o u l d c o n t i n u e
to b e a v a i l a b l e u n d e r a g r a d u a t e d s c h e m e a r e u n d e r e x a m i n a t i o n b u t s h o u l d n o t
p r e s e n t i n s u p e r a b l e difficulties.
APPENDIX
B
Adaptations and Additions required t o the Outline in A p p e n d i x A
to allow for contracting-out
1. T h i s A p p e n d i x gives a n a p p r e c i a t i o n of t h e w a y i n w h i c h a s y s t e m of
c o n t r a c t i n g - o u t f r o m t h e g r a d u a t e d p a r t of t h e s c h e m e o u t l i n e d in A p p e n d i x A
would operate.
2. T h e basic c o n t r i b u t i o n s u n d e r t h e s c h e m e w o u l d r e m a i n c o m p u l s o r y for
all e m p l o y e r s a n d e m p l o y e e s (except m a r r i e d w o m e n ) b u t w h e r e a p p l i c a t i o n w a s
m a d e in r e s p e c t of a n o c c u p a t i o n a l s c h e m e , w h e t h e r existing at t h e c h a n g e - o v e r o r
d e v e l o p e d after it, a n d it w a s a d j u d g e d t o satisfy c e r t a i n c o n d i t i o n s , t h e g r a d u a t e d
p a r t of t h e c o n t r i b u t i o n u n d e r t h e n a t i o n a l s c h e m e , v a r y i n g a c c o r d i n g t o e a r n i n g s
u p t o a m a x i m u m of 4s. Od. a w e e k o n e a c h side w o u l d b e e x c u s e d in full.
Registration
of
Schemes
3. T h e e x a m i n a t i o n of s c h e m e s s u b m i t t e d for a p p r o v a l w o u l d involve b o t h
t e c h n i c a l a n d b r o a d j u d i c i a l c o n s i d e r a t i o n s . F o r this r e a s o n , as well as t o a v o i d
a n y s u g g e s t i o n t h a t a p p r o v a l w a s o p e n t o political influence o r a d e s i r e t o c o n s e r v e
t h e r e v e n u e s of t h e N a t i o n a l I n s u r a n c e S c h e m e , t h e function of e x a m i n i n g p r e s e n t
a n d f u t u r e s c h e m e s a n d issuing certificates of e x e m p t i o n w o u l d b e e n t r u s t e d t o a n
i n d e p e n d e n t R e g i s t r a r of P e n s i o n S c h e m e s w h o w o u l d b e a s t a t u t o r y official
b r o a d l y c o m p a r a b l e to t h e R e g i s t r a r of F r i e n d l y Societies a n d w o u l d h a v e the
n e c e s s a r y t e c h n i c a l a d v i c e for e v a l u a t i n g s c h e m e s . C o n t r a c t i n g - o u t w o u l d b e
a l l o w e d o n l y on a n a p p l i c a t i o n b y t h e e m p l o y e r , possibly in a s s o c i a t i o n w i t h t h e
a u t h o r i t i e s o r t r u s t e e s c o n t r o l l i n g t h e s c h e m e , a n d w o u l d h a v e t o be i n r e s p e c t of
all t h e s c h e m e ' s m e m b e r s . I n d i v i d u a l m e m b e r s w o u l d n o t h a v e t h e r i g h t t o a p p l y
for e x e m p t i o n or t o o p t o u t of a n y certificate of e x e m p t i o n g r a n t e d , b u t it w o u l d
b e a r e q u i r e m e n t t h a t a n y e m p l o y e r m a k i n g a n a p p l i c a t i o n s h o u l d give r e a s o n a b l e
n o t i c e of his i n t e n t i o n to d o so t o t h e m e m b e r s of h i s s c h e m e , s o t h a t a n y differences
c o u l d b e r e s o l v e d b y t h e o r d i n a r y p r o c e s s of i n d u s t r i a l n e g o t i a t i o n .
4. I n c o n s i d e r i n g a p p l i c a t i o n s for e x e m p t i o n , t h e R e g i s t r a r w o u l d a p p l y t h e
f o l l o w i n g m a i n c o n d i t i o n s , w h i c h w o u l d b e e m b o d i e d in legislation. T h e c o n d i t i o n s
r e l a t e t o (1) e q u i v a l e n c y of t h e o c c u p a t i o n a l s c h e m e t o t h e S t a t e s c h e m e ' s g r a d u a t e d
p o r t i o n ; (2) solvency of t h e o c c u p a t i o n a l s c h e m e ; (3) p r e s e r v a t i o n of p e n s i o n r i g h t s
acquired u n d e r the occupational scheme.
Equivalency—Contribution
and
Benefits
5. U n d e r this h e a d t h e e m p l o y e r m a k i n g a p p l i c a t i o n w o u l d h a v e t o s h o w : —
(a)
Either—
(i) T h a t t h e t o t a l w e e k l y c o n t r i b u t i o n s b y h i m a n d his e m p l o y e e s t o g e t h e r
t o t h e o c c u p a t i o n a l s c h e m e w e r e n o t less, in r e l a t i o n t o e a c h
employee, than the m a x i m u m graduated contribution to the State
s c h e m e — i . e . , 8s.;
or—
(ii) T h a t t h e overall l o n g - t e r m benefits of t h e o c c u p a t i o n a l s c h e m e w e r e
at least e q u a l t o t h e g r a d u a t e d benefits of t h e S t a t e s c h e m e .
(b) T h a t t h e e m p l o y e r is legally liable t o p r o v i d e o r h a s p r o v i d e d —
Either—
(i) C o n t r i b u t i o n s c o r r e s p o n d i n g in v a l u e t o a t least half t h e m a x i m u m
graduated contribution under the State scheme;
or—
(ii) A t least half t h e c o s t of l o n g - t e r m benefits o n t h e w h o l e e q u i v a l e n t t o
t h e g r a d u a t e d benefits of the S t a t e s c h e m e .
6. T e s t (a) is t h e crucial test of e q u i v a l e n c y . T e s t (b) is d e s i g n e d t o p r e v e n t
t h e a p p r o v a l of s c h e m e s (they a r e n o t t h o u g h t t o b e c o m m o n ) for w h i c h t h e
e m p l o y e r d o e s n o t c o n t r i b u t e a t least t h e p r o p o r t i o n h e w o u l d c o n t r i b u t e u n d e r t h e
S t a t e s c h e m e w i t h its fifty /fifty d i s t r i b u t i o n . T h e n e e d for a l t e r n a t i v e b a s e s of
c o m p a r i s o n u n d e r e a c h test arises f r o m t h e v a r i e t y of o c c u p a t i o n a l s c h e m e s w h i c h
will b e e n c o u n t e r e d . A s i m p l e c o m p a r i s o n in r e l a t i o n t o m i n i m u m c o n t r i b u t i o n s
w o u l d clearly b e t h e s i m p l e s t t o a d m i n i s t e r , a n d the a l t e r n a t i v e is p r o v i d e d t o c a t e r
for n o n - c o n t r i b u t o r y a n d p a r t i a l l y c o n t r i b u t o r y s c h e m e s w h i c h c a n o n l y b e
c o m p a r e d satisfactorily o n a benefit basis, a n d c e r t a i n o t h e r types of s c h e m e w h e r e a
c o n t r i b u t i o n c o m p a r i s o n w o u l d yield a n u n f a i r result. I t w o u l d n o t b e a p p l i e d
w h e r e a s c h e m e succeeded o n c o n t r i b u t i o n s a l o n e .
Solvency
7. T h e c o n d i t i o n as to s o l v e n c y w o u l d b e d e e m e d satisfied in t h e c a s e of
s t a t u t o r y s c h e m e s , a n d t h o s e i n s u r e d w i t h Life Offices (in r e s p e c t of w h o m
s a f e g u a r d s o p e r a t e d by t h e B o a r d of T r a d e a l r e a d y apply). N o s u c h s a f e g u a r d s a t
p r e s e n t a p p l y t o s e l f - a d m i n i s t e r e d schemes, a n d t h e r e is p e r h a p s a c a s e o n b r o a d
m e r i t s for i n t r o d u c i n g s u c h s a f e g u a r d s q u i t e a p a r t f r o m t h e n e e d for t h e m w h i c h
m u s t arise if e m p l o y e r s o p e r a t i n g s u c h s c h e m e s are given t h e r i g h t t o c o n t r a c t o u t
of t h e g r a d u a t e d p o r t i o n of a S t a t e s c h e m e . F u r t h e r m o r e , w h i l e a p p r o v a l f o r
e x e m p t i o n w o u l d n o t i m p l y a n y f o r m of u n d e r w r i t i n g b y t h e S t a t e of t h e r e l e v a n t
benefits of a n o c c u p a t i o n a l s c h e m e , it is d e s i r a b l e t o p r e v e n t t h e d e v e l o p m e n t of
u n s o u n d schemes.
8. T h e R e g i s t r a r w o u l d t h e r e f o r e n e e d to satisfy himself, in r e s p e c t of
n o n - i n s u r e d a n d n o n - s t a t u t o r y s c h e m e s , n o t only, a s i n d i c a t e d a b o v e , t h a t it w a s
a bona fide s c h e m e for p r o v i d i n g p e n s i o n s , b u t t h a t i t w a s financially s o u n d a n d w a s
so c o n s t i t u t e d as t o b e likely t o r e m a i n so. T h i s r e q u i r e m e n t c o u l d b e m e t b y
s h o w i n g t h a t t h e s c h e m e w a s f u n d e d in r e s p e c t of a t least t h e p o r t i o n p u t f o r w a r d
as e q u i v a l e n t (see p a r a g r a p h 5 a b o v e ) or, if this w e r e n o t t h e case, t h a t t h e e m p l o y e r
w a s legally liable t o m a k e p a y m e n t s sufficient, w i t h t h e e m p l o y e e s ' c o n t r i b u t i o n s ,
if a n y , t o k e e p t h e s c h e m e s o l v e n t o n t h a t basis. T h e R e g i s t r a r w o u l d also r e c e i v e
p e r i o d i c r e t u r n s (e.g., a u d i t e d a c c o u n t s ) s h o w i n g t h e financial s t a t e of a p p r o v e d
s c h e m e s , a n d so b e e n a b l e d to exercise a d e g r e e of s u p e r v i s i o n o v e r t h e i r c o n t i n u e d
soundness.
9. T h e a d m i n i s t r a t i o n of rules o n t h e a b o v e p r i n c i p l e s w o u l d r a i s e
c o m p l e x p r o b l e m s , w h i c h will n e e d f u r t h e r careful s t u d y .
some
Preservation
of Pension
Rights
10. Since r i g h t s t o t h e g r a d u a t e d p e n s i o n u n d e r t h e S t a t e s c h e m e w o u l d b e
q u i t e i n d e p e n d e n t of a n y c h a n g e of e m p l o y m e n t , a n o c c u p a t i o n a l s c h e m e w h i c h
w a s a p p r o v e d as a n a l t e r n a t i v e t o t h e S t a t e s c h e m e , w o u l d b e r e q u i r e d to m a k e
s a t i s f a c t o r y p r o v i s i o n t h a t if a m e m b e r c h a n g e d his e m p l o y m e n t h i s a c q u i r e d
p e n s i o n r i g h t s s h o u l d b e p r e s e r v e d a t a n y r a t e u p t o t h e e q u i v a l e n t of w h a t t h e
c o n t r i b u t i o n s e x c u s e d c o u l d h a v e a c q u i r e d d u r i n g a c o r r e s p o n d i n g p e r i o d of
m e m b e r s h i p of t h e S t a t e s c h e m e . T h e n e e d t o p r o v i d e at least this m e a s u r e of
t r a n s f e r a b i l i t y is i n d e p e n d e n t of t h e m o r e g e n e r a l c o n s i d e r a t i o n s (e.g., m o b i l i t y of
l a b o u r ) w h i c h h a v e b e e n s u g g e s t e d , in t h e Phillips R e p o r t ( p a r a g r a p h 318) a n d
e l s e w h e r e as m a k i n g it d e s i r a b l e t h a t p e n s i o n r i g h t s s h o u l d b e t r a n s f e r a b l e t o a
greater degree t h a n they are at present.
11. T h e r e a r e t w o b r o a d m e t h o d s of p r e s e r v i n g p e n s i o n r i g h t s — t h e p a i d - u p
policy, a n d t h e t r a n s f e r of a l u m p s u m r e p r e s e n t i n g a c c r u e d r i g h t s f r o m o n e f u n d
t o a n o t h e r — b u t highly t e c h n i c a l p r o b l e m s a r e i n v o l v e d a n d t h e e x a c t p r o v i s i o n
f o r t h e p r e s e r v a t i o n of m i n i m u m r i g h t s will n e e d close s t u d y w i t h t h e a c t u a r i a l
profession, the insurance industry, and those operating privately administered
s c h e m e s so as t o c r e a t e as little d i s t u r b a n c e of s c h e m e s as possible. I n c e r t a i n cases
a n u n d e r t a k i n g by t h e e m p l o y e r t o p u r c h a s e a c c r u e d rights in the S t a t e s c h e m e in
r e s p e c t of a p a s t p e r i o d of e x e m p t i o n for e m p l o y e e s w h o left m i g h t be allowed
a s a n a l t e r n a t i v e to a p a i d - u p policy (or o t h e r f o r m of transfer)—e.g., w h e r e t h e p e r i o d
of service in t h e o c c u p a t i o n a l s c h e m e h a d b e e n c o m p a r a t i v e l y s h o r t . I t w o u l d
t h u s b e p o s s i b l e to a l l o w e m p l o y e r s to r e q u i r e a m i n i m u m p e r i o d of service b e f o r e
p e r m i t t i n g p e n s i o n rights as s u c h t o vest in a n e m p l o y e e — a n o r m a l p r o v i s i o n w h e r e
s u c h vesting is a f e a t u r e of t h e s c h e m e , T o p u r c h a s e s u c h rights in t h e S t a t e
s c h e m e t h e e m p l o y e r w o u l d b e p e r m i t t e d t o a p p l y a p p r o p r i a t e p a r t s of a n y r e f u n d
of c o n t r i b u t i o n s w h i c h w o u l d n o r m a l l y h a v e b e e n m a d e o n c h a n g e of e m p l o y m e n t .
12. A p p r o v a l w o u l d n o t b e given t o a s c h e m e w h i c h h a d less t h a n a m i n i m u m
m e m b e r s h i p say, of 5. I t is d e s i r a b l e to e x c l u d e in this w a y t h e very l a r g e n u m b e r
of " s c h e m e s " a p p r o v e d for p u r p o s e s of t a x relief a n d a p p l y i n g t o o n e i n d i v i d u a l
o n l y o r a v e r y s m a l l n u m b e r of individuals in t h e h i g h e r i n c o m e r a n g e s . T h e s e
a r e n o t , in t h e o r d i n a r y sense of t h e t e r m " o c c u p a t i o n a l p e n s i o n s c h e m e s . " T h e r e
is also t h e p o i n t t h a t if t h e s e " special deferred p a y " s c h e m e s w e r e n o t e x c l u d e d ,
t h e r e w o u l d b e p r e s s u r e for i n d i v i d u a l e x e m p t i o n s o n p e r s o n a l g r o u n d s a p a r t f r o m
o c c u p a t i o n a l s c h e m e s (e.g., i n r e s p e c t of p r i v a t e i n s u r a n c e policies).
13. A decision by t h e R e g i s t r a r of P e n s i o n S c h e m e s t o refuse a n a p p l i c a t i o n
f o r a certificate of e x e m p t i o n m i g h t aggrieve n o t only a n e m p l o y e r b u t g r o u p s of
m e m b e r s of t h e s c h e m e . T h i s in t h e p r e s e n t c l i m a t e of p u b l i c o p i n i o n suggests for
f u r t h e r c o n s i d e r a t i o n t h e p r o v i s i o n of a right of a p p e a l against t h e R e g i s t r a r s
decision not to approve a scheme.
Enforcement
14. It is e n v i s a g e d t h a t t h e R e g i s t r a r w o u l d h a v e a n official p a r t t o p l a y in
t h e e n f o r c e m e n t m a c h i n e r y of t h e S t a t e s c h e m e . All e m p l o y e r s w i t h certificates
of e x e m p t i o n w o u l d , as p a r t of t h e c o n t i n u i n g c o n d i t i o n of solvency, be r e q u i r e d
t o satisfy t h e R e g i s t r a r p e r i o d i c a l l y t h a t t h e a p p r o p r i a t e , c o n t r i b u t i o n s (or
e q u i v a l e n t financial s u b v e n t i o n s from t h e e m p l o y e r ) w e r e being p a i d i n t o t h e
o c c u p a t i o n a l s c h e m e . W h e r e s u c h evidence w a s n o t f o r t h c o m i n g , t h e R e g i s t r a r
w o u l d b e u n d e r a d u t y to m a k e a p p r o p r i a t e e n q u i r i e s a n d , in default of satisfaction,
t o c a n c e l t h e certificate a n d r e p o r t t h e s i t u a t i o n t o t h e a p p r o p r i a t e D e p a r t m e n t so
t h a t it c o u l d begin t o collect g r a d u a t e d c o n t r i b u t i o n s u n d e r t h e n a t i o n a l s c h e m e .
Transitional
Period
15. T h e initial w o r k of a p p r o v i n g , a n d in m a n y cases a d a p t i n g , all t h e existing
s c h e m e s i n respect of w h i c h a p p l i c a t i o n for e x e m p t i o n w a s m a d e (which m i g h t r u n
to some thousands) might be heavy, and even assuming that the additional technical
staffs n e e d e d c o u l d b e collected a n d t r a i n e d w i t h i n t w o y e a r s , it w o u l d b e w r o n g
t o c o u n t o n this initial w o r k b e i n g c o m p l e t e d b e f o r e t h e a s s u m e d c o m m e n c i n g d a t e
of A p r i l 1960. If t h e issue of p r o v i s i o n a l certificates of e x e m p t i o n — w h i c h c o u l d
l e a d t o serious s u b s e q u e n t difficulties—was t o b e a v o i d e d , it is n e c e s s a r y t o
c o n t e m p l a t e t h e collection of t h e S t a t e c o n t r i b u t i o n s in full, a n d s u b s e q u e n t refunds
t o o c c u p a t i o n a l s c h e m e s w h i c h established t h e right t o e x e m p t i o n .
Where
s a t i s f a c t o r y a r r a n g e m e n t s for p r e s e r v a t i o n of p e n s i o n r i g h t s c o u l d n o t at once be
b u i l t i n t o s c h e m e s o t h e r w i s e a p p r o v a b l e , a p p r o v a l m i g h t be a l l o w e d if a n
u n d e r t a k i n g t o p u r c h a s e e q u i v a l e n t rights in t h e S t a t e s c h e m e for i n d i v i d u a l s w h o
left d u r i n g t h e t r a n s i t i o n a l p e r i o d w a s given.
APPENDIX C
Estimated income and outgo of National Insurance Fund under various plans.
Present level of unemployment and earnings is assumed throughout
£ millions
Under Graduated Plan without
without contracting out -
(1) Contributions from Insured Persons
and Employers
(2) Transfers to N.H.S. and LI. (3) Available for National Insurance
(l)-(2)
(4) Exchequer Supplements less 1.1.
transfer
(5) Interest (National Insurance only)...
(6) Total Income of National Insurance
Funds ( 3 ) 4 - ( 4 ^ ( 5 )
(7) Expenditure of National Insurance
Funds
(8) Excess of Expenditure over Income
(7)-(6) (9) Total cost of National Insurance to
Exchequer ( 4 ^ ( 8 )
Above the line
Overall 1960-61
1966-67
1980-81
999
141
1,052
141
1,195
141
858
911
127
50
Under Graduated Plan with contracting
out (See Note 2 below)
1966-67
1980-81
949
141
1,002
141
1,145
141
883
141
946
141
1,103
141
1,054
808
861
1,004
742
805
962
127
50
127
50
127
50
127
50
127
50
141
50
162
50
220
50
1,035
1,088
1,231
985
1,038
1,181
933
1,017
1,232
947
1,064
1,317
947
1,064
1,307
947
1,133
1,401
88
(surplus)
24
(surplus)
1960-61
Under Plan outlined in C. (57) 165
1960-61
1966-67
1980-81
86
38
(surplus)
26
126
14
116
169
127
127
213
127
153
253
155
278
389
39
103
213
89
153
253
155
278
389
NOTES.
1. The estimates of contribution income contained in the Table appended to C. (57) 165 were on a basis of a substantial and continued increase in the level of
earnings and did not allow for any corresponding increases in benefit rates. As indicated in paragraph 9 the above figures assume earnings constant at their
April, 1957 level.
2. It is assumed that the inclusion of an option to contract out of the graduated part of the contribution, in the case of persons participating in approved
occupational schemes, would lead to loss of contribution income of about £50 millions a year, which is equivalent to A \ million contributors. (See paragraph 17).