THE NATIONAL PENSION FUND (Hansard, 27 March 1957)

§ LORD PETHICK-LAWRENCE
My Lords, I beg to ask the Question which stands in my name on the Order Paper.

§ THE MINISTER OF EDUCATION (VISCOUNT HAILSHAM)
My Lords, on the basis of the present rates of contribution and benefit, it is estimated that the deficit of the National Insurance Fund in respect of the year 1965–66 will be £233 million, and £309 million in respect of the year 1970–71. It is estimated that the sum total of the annual deficits will reach £1,215 million by 1965–66 and £2,610 million by 1970–71.

§ LORD PETHICK-LAWRENCE
While thanking the noble Viscount for his Answer, I should like to ask him this question—I hope I am not embarrassing him as a financial expert in relation to the Chancellor of the Exchequer by so doing. Can he throw a little more light on these figures? Are they purely actuarial estimates of the deficits, or will they be definite amounts which represent excesses of expenditure over income and which would therefore have to be met out of the Budget, unless, in the meanwhile, some legislation is passed having a different effect?

§ VISCOUNT HAILSHAM
My Lords, the answer is that the deficits are the estimated excesses of current expenditure over income, and that, as I shall explain in a moment—and I fear that the explanation is a little complicated—current legislation makes provision under which they can be met out of voted monies as they occur. Owing to the increasing number of retirement pensioners, the expenditure of the National Insurance Fund, out of which these pensions are paid, is expected by the year 1958–59 to exceed the income of the Fund from contributions, Exchequer supplement contributions and interest on the invested balances in the Fund and the National Insurance (Reserve) Fund. With the object of meeting these deficits, provision was made in Section 2 (3) of the National Insurance Act, 1954, for the payment by the Exchequer to the National Insurance Fund of sums totalling not more than £325 million, to be paid in such manner and at such time as the Treasury may determine, over the period of five years beginning at April 1, 1955, and thereafter such sums as Parliament may determine.
The sum of £325 million provided in the Act as the maximum was related to the size of the annual deficits forecast at the time by the Government Actuary in his report on the financial provisions of the National Insurance Bill, 1954. The figures have since been revised, and it is now estimated that a deficit of about £40 million will first occur in 1958–59, and that the subsequent annual deficits will increase as indicated in my original Answer. Over the quinquennium to March 31, 1960, the total sum required is likely to be substantially less than the £325 million available. The reduction is 801 mainly due to the level of unemployment being currently less than that assumed for the purpose of forecasting in 1954, which was necessarily arbitrary.
The deficits will arise because the National Insurance contribution is based, apart from a relatively small addition made to the actuarial contribution in 1955, on the amount actuarially required to provide a person who contributes from the age of sixteen with the benefits as they were at the time at which he entered the scheme. In fact, however, most people have been admitted to the scheme at ages well above sixteen, and improvements in benefits and pensions have been given to all persons already within the scheme, including those already drawing pensions. The occurrence of the deficits is not unforeseen or unexpected; they result from deliberate acts of policy in granting the concessions described in the two factors which I have just enumerated.

§ LORD PETHICK-LAWRENCE
My Lords, I thank the noble and learned Viscount for the illuminating figures and facts that he has given us.

§ LORD GREENHILL
My Lords, does that mean that we are now reconciled to the idea of contributing each year a certain amount towards the deficit and have to accept as a fact the insolvency of the fund in all time coming?

§ VISCOUNT HAILSHAM
My Lords, I should be rather slow to reconcile myself to anything of that order.