National Insurance Contributions Research Articles

Growing the UK Pension Pot: The Case for Privatisation

The system of contracting out of state pensions – a form of pension privatisation – operated very successfully in the UK until recent years with cross-party support. This was very important in ensuring that the UK system of private pension provision was one of the most successful in the Western world. This paper proposes reviving the concept of voluntary pension privatisation through contracting out using the proposed reformed UK pension system that will be introduced from 2016. Under the proposals, individuals would receive rebates of national insurance contributions equal to the fair actuarial value of the pension that they will forego as a result of opting out of half the state pension. The rebates will be paid to somebody contracting out regardless of whether that individual pays sufficient cash national insurance contributions: the rebates are designed to reflect the actuarial value of the pension foregone. They will vary with age and be available to low earners and those who are receiving state pension entitlement as a result of undertaking caring responsibilities. Such people will be able to build up considerable pension assets in their own right. In the context of widespread discussion about the inequalities arising from returns on capital being higher than economic growth, this might be regarded as especially important. Currently, large numbers of people are discouraged from accumulating capital because the main objectives of saving are fulfilled by the state pension schemes. If the state pension is linked to earnings, the rebate would be around £3,000 per year for a 40-year-old. This seems high, but it is a reflection of the very high cost of the state promising earnings-related pensions as it does currently. The rebate would be saved in a defined contribution vehicle and the government’s low-cost National Employment Savings Trust (NEST) scheme would be available as a savings vehicle. If the state pension were linked to prices, the rebate would be around £1,500 for a 40-year-old. The rebates will change as mortality and interest rates change and be set according to objective criteria. They would be challengeable in the courts to prevent the erosion of rebates as happened under the previous contracting out scheme. If 10 million people decided to contract out, rebates might total between £15 billion and £30 billion. The government has, in fact, paid national insurance rebates of £10 billion until quite recently. Although this cost may seem high, it is merely bringing forward the cost of government pension promises to the time at which the promises are made. It would be reasonable for the government to borrow to finance the payment of rebates if necessary (or run lower budget surpluses) given that, when people contract out of the state pension, it lowers future pension liabilities. This reform can be seen as a first step to a more comprehensive plan of pension privatisation. The reform proposed in this paper would revive – in a more robust form – the policy of UK governments which, until, recently, was to promote private pension provision as an alternative to state provision. It is particularly important given that the coalition government is now in the process of abolishing contracting-out from state pensions. Largely due to the system of contracting out developed after the war more than 5.5 million workers (nearly one-quarter of the workforce) had personal pension plans by 1995, while many more were members of occupational pension schemes. Overall, the number of people contracted out of the state earnings related pension scheme (SERPs) reached 13.8 million by 1994/95. The ratio of people contracted out of SERPs to SERPs’ members peaked at over 2:1 in 1992/93. Partly because of this policy the value of pension fund assets in the UK is equal to 73 per cent of GDP. In contrast, in large parts of continental Europe private pension fund assets are almost non-existent: in France, Italy, Spain and Greece, as well as in Austria, Germany, Sweden and Norway, they account for less than 10 per cent of GDP. However, contracting out declined in the twenty-first century. By 2011, only 1.6 million people were contracted out through private sector defined benefit schemes. The main reason for the reduction in contracting out was the reduction in rebates of national insurance contributions that were received by people who contracted out. The rebates from 2012 onwards were set at 4.8 per cent of the relevant earnings band when a figure of over 10 per cent would have been more justifiable. The reforms proposed in this paper would ensure that the rebates of national insurance contributions given to those contracting out of the state scheme would reflect the value of the state pension benefits that were given up.

Rückkehr in das Erwerbsleben nach Hüfttotalendoprothese

Return to work is an important prerequisite to achieve subjective success of an operation. The analysis of the routine data from the German Federal Pension Fund allows a comprehensive evaluation and investigation of factors which influence reintegration into employment. A random 2 % sample of rehabilitants was drawn from the scientific use file "Abgeschlossene Rehabilitation im Versicherungsverlauf 2002-2009" (completed rehabilitation in the course of health insurance 2002-2009) of the German Federal Pension Fund. Patients were included if they were 18-60years old and had participated in rehabilitation due to the diagnosis arthritis of the hip. To obtain information on employment status the national insurance contributions and labor force groups in the year before and 2years after rehabilitation were used. Using regression analysis the influence of sociodemographic factors was analyzed. Of the 736patients included in the survey 625 (84.9 %) were employed again 2years after rehabilitation. Out of these 519 (83.0 %) returned to their previous profession and 228 (36.5 %) paid less insurance contributions. Increasing age and a manual job were identified as risk factors for re-entry into employment. In Germany a high percentage of 84.9 % of patients return to work after joint replacement due to coxarthrosis. Nevertheless, the results indicate that the social situation becomes worse for approximately one sixth of the patients.

Employment of disabled people in the private sector. An analysis at the level of Italian Provinces according to article 13 of law 68/1999

Law 68 of March 12, 1999, whose aim is to regulate and promote the employment of disabled people, has contributed significantly to the employment of persons with disabilities, and consequently to their social inclusion. In particular, article 13 of this law offers exemption from national insurance contributions to private institutions that employ disabled people. In this paper we propose a two-step analysis to assess the effectiveness of this law at the level of Italian Provinces for the year 2005. In the first phase, we verify by means of data envelopment analysis which Provinces are ranked among the most efficient ones in the application of article 13 of law 68/99. Then, through the use of cluster analysis, we examine differences among Provinces in terms of the factors that determine their different efficiency in the employment of disabled people. The results show that the employment of disabled persons is significantly affected by three groups of factors, i.e. the input endowment of the factors which affect the employment of disabled people, the Province ability to coordinate actions geared to achieving the employment of persons with disabilities, and the promotion of policy actions aimed at supporting the social inclusion of disabled people.

TAX AVOIDANCE, PRIVATE COMPANIES AND THE FAMILY

AbstractRecent media reports have revealed a substantial number of highly-paid senior civil servants and BBC presenters have been using “off payroll” arrangements and personal services companies to reduce the tax paid on their earnings. This article examines the tax and National Insurance contribution (NIC) savings that can be had by carrying on economic activity through a company rather than as an unincorporated business or an employee. These savings derive from a combination of favourable tax and NIC rates on companies, and can be further increased through family income-splitting arrangements, as witnessed in the case of Jones v Garnett. Several possible reforms to address the distortions and inequity in the present tax and NIC regimes in favour of companies are considered, including amendments to the IR35 “disguised employment” regime and the anti-income-splitting rules known as the settlement provisions. Applying the new statutory general anti-abuse rule, which the Government plans to introduce in Finance Act 2013, is another possible approach. The preferred option, however, is to deal with the root problem and pursue closer alignment of the tax and NIC treatment of activity carried on in different legal forms.

Impacto de la reforma del Régimen Especial de la Seguridad Social Agraria en la agricultura canaria

This paper deals with the potential effects on the profitability of Canary Islands’ farms due to the Special National Insurance System for Agricultural Workers Reform which was put in place in 2009 by the Spanish Government Ministry of Labour and Immigration. The effect on the employers’ National Insurance contributions per working day is analysed. Based on this analysis, the impact on costs and benefits in several farms which cultivate bananas, tomatoes or flowers is evaluated. According to the results, it is concluded that these farms cannot afford the costs’ increase derived from the reform if profitability per product unit or per surface should be maintained. On the other hand, the effect of changes in the contribution basis is softened to a great extent by the application of compensatory deductions, which are likely to disappear on the long term.

A strategic approach to rewards helps Vinci restructure

PurposeThis article aims to review how one organization – Vinci – leveraged a strategic and integrated approach to employee benefits to unify three different businesses, each with their own, different set of T&Cs, employee benefits and benefit providers. This work was undertaken in the midst of economic recession that put significant pressure on the business to retain and reward its people.Design/methodology/approachThe article provides best practice case evidence that outlines how effective employee consultation and buy‐in was generated, employee communication was delivered and understanding of the new employment package was disseminated to staff.FindingsThe paper demonstrates the positive and far‐reaching impact of the work to unify employee benefits provision across these merging organizations. With over 99 percent of employees signing their revised T&Cs and employees making savings of over £500,000 in tax and NICs (National Insurance Contributions), the work undertaken at the organization has, understandably, had a positive effect on employee turnover and overall levels of engagement.Originality/valueThe article presents a first‐hand account of the work carried out to bring the businesses together and ensure the company could offer a strong and engaging employment and benefits package.

Unfunded promises as the UK health debate takes centre stage

On May 6, 2010, the UK population will vote to decide their government for the next 5 years, and health policy is likely to be a major factor in the outcome. Politicians know health is the “ace up the sleeve” if used cleverly and, with just a few days to go until the election, the card tricks have started. The Conservative leader, David Cameron, has pledged to reverse the 1% increase in national insurance (NI) contributions proposed by the Labour party, and to use the employer NI contribution saved within the National Health Service (NHS), estimated at £200 million, to fund drugs licensed since 2005 for patients with cancer, if recommended by their oncologist—even where the National Institute for Health and Clinical Excellence (NICE) has ruled against their use on the grounds of cost-effectiveness. This pledge is a laudable one—provided treatments are the most clinically effective available—and will win votes, but raises a number of questions, not least the need for NICE if it can be circumvented so easily. 10 years of NICE: still growing and still controversialThe National Institute for Health and Clinical Excellence (NICE) will have existed for 10 years on April 1, 2009. Over the past decade, the institute's methodological approach to the development of guidance and assessment of the value of health-care interventions has received international interest and acclaim. Furthermore, individual decisions, in particular those made on new cancer drugs, have generated enormous controversy. An early example was the appraisal of irinotecan and oxaliplatin for colorectal cancer in 2002. Full-Text PDF Patient access schemes for high-cost cancer medicinesInnovative new anticancer medicines are often associated with a premium price with little variation in global prices. For the UK, this can mean new cancer medicines are not adopted, because they are judged to be too expensive and not cost effective by the National Institute for Clinical Excellence (NICE). In response, pharmaceutical companies have developed patient access schemes (PAS), or risk-share schemes, that allow drugs companies to offer discounts or rebates to reduce the cost of a drug to the UK National Health Service (NHS). Full-Text PDF

Gender Equality and the Pensions Acts 2007-2008

The Pensions Act 2007 and the Pensions Act 2008 are part of the Government's strategy to implement the recommendations contained in the White Paper Security in retirement: towards a new pensions system.1 One of the White Paper's objectives was to ‘deliver fairer outcomes for women and carers’.2 That fairer outcomes are needed for existing and future women recipients of pensions is clear. The White Paper listed the reasons why women generally received lower pensions than men. Firstly, until 1978, the system did not recognise caring responsibilities, with the result that absences from the workforce for such reasons led to periods without contributions which resulted in a lesser likelihood of reaching the required 39 years contributions for a full basic state pension. Secondly, again prior to 1978, women were able to pay a reduced rate of national insurance contribution and rely upon their husband's contributions, thus not having a...

2008 Pre-Budget Report

UK Chancellor of the Exchequer, Alistair Darling, presented his second Pre-Budget Report (PBR) Pre-Budget Report, November 2008, Cm 7484, “Facing global challenges: Supporting people through difficult times”, available at www.hm-treasury.gov.uk. to the House of Commons (the House) on 24 November 2008. This note deals with the proposals in the PBR that significantly affect VAT, income tax (IT), national insurance contributions (NIC), corporation tax (CT) and stamp duty land tax (SDLT). There are no significant proposals relating to capital gains tax or inheritance tax.

Labour costs

Labour costs cover all aspects of costs incurred by employers when employing workers. These include wages and salaries, National Insurance and social contributions, redundancy payments, benefi ts in kind, overheads and other nonwage components. This article gives a brief overview of the structure of labour costs and then focuses on earnings (the largest component of labour costs). It shows how earnings in the whole economy have changed over time and also the earnings distribution by occupation. The other topics of interest analysed in the article are the gender pay gap both over time and by various personal characteristics, as well as estimates of how many people are paid below the National Minimum Wage.

Failing to keep up? The long-term effects of current benefit and tax uprating policies

The ways benefits, tax credits and income tax and National Insurance contribution thresholds are uprated each year have major long-term consequences for the relative living standards of different groups. Continuing current practice for 20 years, other things staying the same, could result in substantial increases in poverty, including a near doubling of the child poverty rate, alongside a substantial gain to the public finances. At the same time, pensioners are largely protected by the earnings indexation of pensioner benefits. We illustrate the distributional implications of alternative targeted policy reforms, financed by part of the resources that would be released through continuing current uprating practices.

Permitted work, ‘passporting’ and Employment and Support Allowance: a fundamental flaw

The Employment and Support Allowance (ESA), introduced in October 2008, replaces Incapacity Benefit, and Income Support through illness or disability, for new claimants. This article explores a key problem with the new benefit: changes in the permitted work rules between Income Support and income-related ESA mean that a single person with no other income or savings who has paid National Insurance contributions could be more than £60 per week worse off than someone in a similar position who has not paid contributions. The problem is outlined below, and potential solutions are proposed.

Patients' views on the UK policy of prescription charges—Insights from qualitative interviews

Background Some UK evidence exists, which suggests that the cost of prescription charges can pose a barrier to accessing medication. However, little evidence exists on patients' more general views on the policy of prescription charges. Objectives The aim of this study was to explore the views of nonexempt patients, suffering from chronic conditions requiring regular medication, on the UK policy of prescription charges and how this could be improved. Methods Patients aged between 18 and 59 years (ie, potentially paying charges) were approached through 6 General Practices in Northwest England. Thirty asthma, 8 coronary heart disease, and 23 hypertension patients were interviewed in depth. Results Numerous interviewees were appreciative of the National Health Service, recognized its cost pressures and accepted paying toward medication in principle. A few though disagreed with charges on top of national insurance contributions. Many felt the level of the charge was too high. To protect population groups potentially vulnerable to issues of affordability, interviewees suggested that 2 principles should underpin any prescription charges policy: People on low incomes and essential medication treating chronic conditions should be exempt or subsidized. There was extensive discussion on the current grounds for medical exemption, which many viewed as not meeting these principles well or fairly, as well as the grounds for age-related exemptions. Conclusions This study has highlighted a number of principles and options that should be considered by the UK Governments when reviewing the prescription charges policy. It puts these in context of the ongoing public consultations commissioned by UK Governments.

The cost and value of UK defined benefit pension provision

SUMMARYThe purposes of this paper are to consider the effect on remuneration of defined benefit pension accrual and the factors that have resulted in changes to the cost and value of this accrual. In this paper, I look at the effect of the change in the cost to an employer of providing a defined benefit pension on the overall cost of remunerating an employee and compare that with the cost of remunerating an employee with no such pension benefits. I allow for the additional cost to the employer of national insurance contributions (‘NICs’). I also look at the change in value of an employee's remuneration, taking into account the value of defined benefit pension accrual and compare this with the change in remuneration for an employee with no such benefits. Here, I allow for employee national insurance contributions and income tax. These assessments look at the cost and value of pension accrual rather than any surplus or deficit relating to previously accrued pension entitlements. I find that costs of employment have risen significantly more for members of defined benefit pension schemes compared with other employees, and that this has largely been as a result of falling long-term interest rates and their effect on the cost of defined benefit pension accrual. The increase in the value of remuneration to employees has shown a similar pattern.

Financing Higher NHS Spending from Increased National Insurance

This article uses international comparisons to demonstrate the UK's relatively low spending on health care services and considers why extra money is being raised from National Insurance Contributions rather than from other sources of tax revenue. It outlines various options for measuring the UK-EU health spending gap and finds that they yield substantively different estimates of the size of the spending gap to be filled. It explains why closure of that gap may be aided by enlargement of the EU. It concludes that closure of the spending gap may be as much or more the result of accident than of design.

Paying for ‘World Class’ Services: a British Dilemma

Welfare spending in the UK is too low to provide services at the level to which most citizens aspire. The problem is that, although most people state in surveys that they would like to pay higher taxes for better services, politicians from all the main parties generally do not believe that they would put their vote where their mouth is. Advocates of higher spending increasingly retreat to a position of promoting ear-marked taxes for specific, highly favoured services, as in the 2002 Budget plan to finance the cost of improvements in the highly valued NHS through increased National Insurance Contributions. Recent theoretical work further undermines arguments for higher state spending: an important strand in political science argues that trust in state institutions is in decline, and work in sociology claims that citizens are becoming more independent, reflexive and keen to take responsibility for meeting their own needs. This paper uses data from a recent ESRC-financed national survey to examine these arguments. It shows real support for hypothecated taxes for the NHS, and more generalised support for higher taxes for welfare provision. Such support is not undermined by a decline in citizen trust in the welfare state or by a rejection of collective solutions. However, there is little endorsement of hypothecated taxation in other areas, and the use of such measures may encourage citizens in a pick-and-mix approach to welfare services.

The UK's Climate Change Levy: Is It Working?

The centrepiece of the UK Government's greenhouse gas emission abatement programme is the Climate Change Levy. Introduced in April 2001, the Levy is an industrial energy tax, with major concessions offered to minimise adverse effects on British businesses. The Government's choice of a taxation mechanism was shaped by the perceived efficiency advantages economic instruments have over command and control regulations. Existing research, however, stresses that environmental taxes are complex instruments, which may not be effective in addressing certain pollution situations, and depend on careful design and implementation for their success. An empirical investigation of the effect of the Levy on businesses in the Northwest of England has revealed that, contrary to some theoretical postulates, the Levy has had a rather muted, haphazard effect, and there has been no substantial new investment in energy efficiency technologies or extensive switch to renewable fuels. Other studies have highlighted some problematic economic effects of the Levy. If the Climate Change Levy is to be environmentally effective, a variety of changes will be necessary. These include widening the price differential between green and brown fuels, extending the Levy to the household and transport sectors, and enhancing the offsetting deductions to employers' national insurance contribution. Also, the relationship between the Levy and the new tradeable emission allowances scheme must be reviewed.

Social security and pension arrangements for workers posted abroad and their employers

This paper examines the statutory provisions and equivalent in the field of social security and occupational pensions applicable to workers seconded by their employer to work abroad. It looks at UK regulations that specify the circumstances under which individuals and employers are liable, or entitled, to pay National Insurance contributions while absent from the UK, and those in which state pensions and other social security benefits are payable while persons are abroad. It also outlines provisions of European Union (EU) Regulations that override UK national provisions for EU and European Economic Area (EEA) nationals absent from the UK in other EU and EEA states. The paper also examines the rules laid down by the Inland Revenue to enable persons working abroad to continue membership of UK occupational, personal and stakeholder pension schemes and to transfer pension rights to foreign schemes. It refers to the EU Directive concerning the protection of supplementary pension rights for persons who move between member states. Although the paper mentions bilateral conventions between the UK and non-EEA states, it does not examine the provisions of each convention.

Social security in the UK under New Labour: what did the Third Way mean for welfare reform?

AbstractIn 1997, the Labour Party was elected in the UK with few explicitly articulated ideas about social security reforms. This paper reviews the large number of subsequent reforms to social security, and argues that some consistent themes have emerged. A commitment to keep to the tight spending plans of the previous, Conservative, administration left little scope for increases in benefit spending during the first two years in office. Since that time, increases in the generosity of some social security programmes have been directed towards achieving certain goals. An emphasis on encouraging paid work has been a consistent theme, whilst aims of reducing poverty rates for children and pensioners have been emphasised since 1999. Spending to achieve these goals has often been directed through means‐tested programmes, and there has been a related weakening of the link between paid National Insurance contributions and benefit entitlements. It remains to be seen whether reforms to the process of income assessment will increase take‐up.

A highly charged debate.

Gordon Brown's 2002 budget is, according to the Treasury, set to deliver 'the largest ever sustained increase in NHS resources, in order to put the health service on a sustainable long-term financial footing'. Funded by an increase in national insurance (NI) contributions, the chancellor was able to announce annual real terms increases of 7.4 per cent for the NHS over five years, and 6 per cent for social care over three years. While these figures make extremely welcome reading on one level, there is, as usual, a sting in the tail.