"Beyond Beveridge"

New work from Peter Saunders who provided advice to the Welfare Working Group:

A new Civitas book proposes a sweeping overhaul of the benefits system which would see National Insurance abolished and replaced with a system of personal welfare accounts that would put the contributory principle back at the heart of social security. The accounts could be used for saving, insurance and even loans - helping people spread the costs of unemployment, parental leave, higher education and old age across their lifetime.

Of course people would be compelled to contribute to these accounts which finds disfavour with libertarians.

My position has always been I'd rather be compelled to provide for myself than compelled to provide for someone else.

Beyond Beveridge can be found here. No, I haven't read it yet. And at 179 pages I probably won't.

But here's the plan for people interested in how we get there from here (given NZ's social security set up is similar). It sounds Roger Douglasish in the detail:

1. Wind up the National Insurance system:

The employee 12 per cent contribution should be added to

the basic income tax rate making a new basic rate of 32 per

cent (with appropriate adjustments for older workers, the

self-employed and people receiving income from savings

and pensions). The higher tax rate should rise to 42 per

cent to take account of the two per cent NIC levied on

earnings above the upper earnings limit. The 13.8 per cent

employers’ NICs should become a Payroll Tax.

 

2. Establish entitlement to the new state pension through

residency

Scrapping NICs means new eligibility rules are needed for

the state pension. Eligibility should depend on 10+ years

of residency in this country. Pension Credit should be

abolished.

3. Phase in a state pension means-test for new retirees

Over the next 40 years, if NICs are abolished now, the

contributory component of people’s state pensions will

gradually get smaller, and the taxpayer-funded component

will get larger, until eventually the whole of every state

pension claim will be funded out of tax revenues. The tax-

funded component of state pensions should be means-

tested. 

 

4. Freeze current National Insurance entitlements and recognise

them as government debt

Entitlements based on contributions up to the time National

Insurance is scrapped should be honoured by freezing

people’s NIC records, indexing their existing entitlement

to take account of inflation, and paying this amount as a

weekly or monthly pension from when they retire. The

future cost of these payments (currently estimated at £3.8

trillion) should be explicitly acknowledged as part of total

public sector borrowing. 

 

5: Make membership of workplace pension schemes compulsory

The right of workers to opt out of workplace pensions

should be ended. With a means-tested state pension, saving

in private retirement accounts has to be made compulsory

to minimise moral hazard. 

 

6. Boost personal retirement savings accounts

Minimum contributions into the new workplace pensions

schemes add up to 11 per cent of salary (combining the

employee’s and employer’s contribution, and adding the

value of government tax relief). This is too low to guarantee

self-reliance in retirement. Contributions should be boosted

by reducing the government’s tax-take from employees and

employers. In particular, savings accruing from means-

testing the state pension should be used to reduce the employer Payroll Tax from 13.8 per cent to 12 per cent (switching the 1.8 per cent reduction into an enhanced

employer contribution to workplace pensions), and the basic

rate of income tax for employees from 32 per cent to 30 per

cent (switching the 2 per cent reduction into an enhanced

employee contribution to the workplace pension). This

would take the minimum total contribution into workplace

pensions to almost 15 per cent. Proceeds from privatisation

of Royal Mail and the state-owned bank assets should also

be used to boost workers’ pension accounts. 

 

7. Gradually extend the permitted uses of workplace pension

funds to develop them into personal welfare accounts

Contributory unemployment and sickness benefits should

be scrapped two years after NICs are ended (all claimants

would then get the non-contributory Universal Credit).

At the same time, people should be allowed to use their

personal welfare accounts (or borrow against them) to

provide a benefits-level income for the first 6 months out

of work, during which time there should be no conditions

applied to them. Existing and future student loans should

be integrated into personal welfare accounts and, over

time, accounts should be further extended to cover periods

of parental leave to care for children and basic insurance

against old-age care costs. 

 

8. Apply activity conditions to receipt of working-age benefits

Unconditional support for people who cannot be expected

to work (severely disabled people and single parents with

infant children under one year) should continue, but for

those who are capable of working full- or part-time, and

who cannot support themselves from their own personal

welfare accounts, fairness requires that appropriate work-

based activity conditions should be attached to receipt of

state benefits. No activity conditions should be attached

to jobless people drawing on their own personal welfare

accounts