People should be made to pay into lifelong “personal welfare accounts” under reforms which would see them take more financial responsibility for their old age and National Insurance scrapped, a think-tank has argued.

The report from Civitas argued that National Insurance is “no longer fit for purpose” and everyone in work should be forced to save into a private pension to help shoulder the burden of rising old age costs.

Civitas professorial research fellow Peter Saunders argued in the report, titled Beyond Beveridge, that the principle that those who are able to should pay into the system has been eroded and “taxpayer-funded hand-outs have increasingly replaced contributions-based benefits”.

Mr Saunders, who is Professor Emeritus at the University of Sussex, where he was previously Professor of Sociology, said the nation must be “weaned off” its reliance on Government benefits.

While the main purpose of the personal welfare accounts would be for retirement saving, they could also provide cover for when times are tough during periods of short-term unemployment, sickness and parental leave.

People would be able to borrow against them to meet higher education costs and provide an income during sudden unemployment and they could also be used to insure against future nursing home fees.

Mr Saunders said National Insurance is in a “sorry state” and the new welfare accounts would rescue the principle of an “instinctive sense of fairness”.

The report said: “Today, people are treated as if they have paid contributions when they haven’t, and claimants with no contributions record get treated much the same as those who have being paying contributions all their lives…

“Britain is almost alone in Europe in paying unemployed people with weak or non-existent employment records the same as those with a long history of employment.”

Mr Saunders said National Insurance has been subject to so much “tinkering” over the last 70 years that it has become “almost unrecognisable” and people no longer understand how their contributions are being used.

He said: “It is no longer fit for purpose, which is why many observers think the most sensible option is to scrap it altogether.

“But there is something uniquely important about Britain’s National Insurance system which must not be lost. It is the principle that people establish a right to benefits by making regular contributions into a fund throughout their working lives.”

With nearly 11 million people in the UK already aged over 65 and this figure expected to surge to 16 million in the next 20 years, many people will spend more time in retirement than they did paying off their mortgage.

Fears have been raised that the ageing population is failing to put enough cash aside for its later years and the Government’s landmark reforms to automatically place people into workplace pensions started last autumn. So far the scheme has had a higher than expected success rate, with nine in 10 workers staying in the pension they have been auto-enrolled into.

But the report argued that the right to opt out of workplace pensions should be done away with to ease the cost pressures of providing the state pension.

Mr Saunders said: “The unfunded liabilities of the state pension scheme are now so large that it is difficult to see how future state pensions can realistically be paid unless people start to take more responsibility for their own retirement.

“The UK Government currently owes more than £5 trillion in pension obligations. Nearly all of this – £4.7 trillion – is unfunded. This debt is the equivalent of 342pc of the nation’s current GDP.

“Means-testing the state pension, to target state benefits more precisely on those in need, is not only a sensible and desirable policy; it may be an unavoidable one.”

Mr Saunders also said private pensions should be topped up out of the proceeds from the sale of public assets, such as Royal Mail, the part-nationalised banks and mobile phone licence auctions.

The Association of British Insurers (ABI) recently launched a wide-ranging investigation into the challenge the country faces in paying for its ageing population, which will include probing how effectively pension products cater for people’s needs and the challenge of how taxpayers are expected to fund a growing number of retirees.

Source: Civitas

For bespoke advice on planning your retirement contact Credencis.


“Live for today, Invest for tomorrow”