Nearly nine million people entitled to national insurance benefits and war pensions will now be receiving increases in their benefits. In total these increases will cost an extra £227 million a year.
The rules governing the award and payment of pensions and benefits are complicated but the principles on which the scheme is based are simple. They are those laid down by Beveridge in 1942, and translated into a system of national insurance in 1946, and translated into a system of national insurance in 1946. Beveridge reasoned that the contingency against which we need to insure is inability to earn a living.
So long as we are fit and able to go to work, we can provide for our own requirements; but as soon as we become sick, or are unable to find work, or are too old to be expected to work, we are entitled to draw cash benefits. Hence the scheme provides sickness benefit and various other subsidiary benefits; the common factor in the award of these benefits is the absence or loss of earnings. There have been some departures from, and adaptations of this Beveridge principle but the essential features have been preserved.
AN INSURANCE SCHEME
Being an insurance scheme, entitlement to benefit depends upon the number of contributions paid. A deficient contribution record can reduce the amount of retirement pension, widow's benefit, or sickness benefit, etc., which can be drawn. Leaving aside the graduated pension scheme (which applies only to retirement pensions at present) there are two basic rates of contribution—one for men and the other for women. The bachelor pays the same as the married man with two or three or more children. The benefits they draw however, depend not only upon their contributions but on the number of dependents they have. When we refer to the basic rates of benefit we mean the rate for the single person (man or woman) and the rate for the married couple. The single rate is 57/6 and is being increased by 10/- to 67/6 under the latest National Insurance Act, and the rate to a married couple is 98/6 and is being increased by 16/6 to 109/-. However, these basic rates are only a part of the story, for in all, more than 150 different rates are paid.
VARIATIONS IN BASIC RATE
The basic rates can be increased by—
(1) Allowances for children.
For example, under the new Act the allowance for the first child will be 20/- (formerly 17/6) and for each other child, 12/- Children of widows are entitled to higher rates than these. The widow receives 30/- for her fist child and 22/- each for other children. Family allowances are paid in addition to these sums.
(2) Increments to retirement pension.
These are earned by a person who instead of retiring at the minimum age of 65 for a man and 60 for a woman, carries on working full time. According to how long after pension age he works he earns extra pension for every week of retirement. Out of the present 5¾ million retirement pensions, 1½ million draw increments in this way.
(3) Graduated Additions.
These are small as yet but will increase in importance and amount as the graduated contributions mature.
The basic rates can be decreased by
(a) a deficient contribution record.
(b) a prolonged period in hospital.
(c) earnings over the £3 10s. per week (soon to be £3 10s. per week (soon to be £4 5s.) for the retired person aged between 60–65 (women) and 65–70 (men). After that, the amount which can be earned without reduction of pension is unlimited. For the widowed mother the amount, now £5 is shortly to be raised to £6.
The amounts granted to the widowed mother in respect of her children are never reduced no matter how much she may earn; and the 26/- housekeeping allowance under the New Act cannot be reduced.
These many variations account for the large number of basic rates paid and help to explain why when national insurance increases are announced, each pension book has to be revised individually according to the recipient's record and his circumstances. This is why it takes about 4 months to bring the increases into operation.
Incidentally, we are one of the few countries in the world which pays benefits weekly. Most countries pay monthly or even quarterly.
COMPARISON OF PENSION WITH COST OF LIVING
It is often suggested that it would be a good idea to vary pensions and other national insurance benefits according to the cost of living. Had we done so from the beginning of the scheme the result would not have been advantageous to pensioners. The initial rate of 26/- single paid in October 1946 is equivalent in real terms to 48/2 on the cost of living figure published this month (February). But the basic rate now is higher than that, it is 57/6 and is going to be 67/6 at the end of May. The corresponding figures for the married couple are that the 42/- rate in 1946 would be equivalent to 77/9 now, whereas the rate is 92/6 and will shortly rise to 109/-.
Whenever pensions go up contributions go up too. About 80%; of the money paid out in benefits comes directly from the contributions of employers and employees. The rest comes from taxes. The whole scheme is financed on a pay-as-you-go basis, that is to say this year's contributions are paid out this year as benefit. Increases in weekly contributions are not levied until the beginning of June—that is until after the benefit increases have come into effect.
The National Insurance scheme is not the whole story of Social Insurance. There is as well a separate Industrial Injuries scheme which provides insurance cover against accidents at work. This is likewise financed by contributions from employers and employees plus a subsidly from the Exchequer.
War pensions are, of course, paid for entirely by the taxpayer and at present amount to £110 million a year. They are usually more generous in amount than those paid under the National Insurance or Industrial Injuries. This is in recognition of the enormous debt we owe to those people who gave their lives in order that we may enjoy the freedoms and benefits of life today.