Pensioned off? Evaluating the UK's National Insurance scheme

IMPACT

Policy-makers frequently neglect the ways in which social policies are funded through taxation. This relationship is of critical importance because misalignment can cause social policy failure and tax injustice. This is evident with National Insurance (NI): a tax used primarily to fund the UK’s state pension entitlement. This paper explains how NI is failing women and poorer people, prompting questions of why such a poorly designed, unfair and ineffective tax has persisted for so long in the UK. The paper proposes a radical solution: the payment of a universal basic pension and the abolition of NI, with consequential adjustments in income and corporation taxes to compensate for revenue losses.

ABSTRACT

This paper makes a rare contribution to understanding how taxation is used to fund social welfare, and the implications of that relationship. In the UK, National Insurance (NI) is a hypothecated tax used primarily to fund state old age pensions—a contributory welfare benefit. Through historical analysis, and the exemplar of the raising of the state pension age for women, this paper demonstrates that NI fails women and poorer people more than men and the better-off: creating serious problems of social equity. A solution is proposed: the abolition of NI with consequential adjustments to income and corporation taxes, and the introduction of a universal basic pension.

KEYWORDS:

• Gender
• National Insurance
• pensions
• retirement
• social insurance
• social welfare
• taxation
• welfare benefits

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Until 1977, married women could elect to pay a reduced rate of NI and rely instead on their husband’s pensions—an arrangement indicative of the ways in which NI continues to embody archaic social histories.