NI should be replaced by guaranteed pension pot

The 56-page report, published by the Reform Scotland think-tank, put forward the idea of an Australian-style guaranteed pension pot, funded by compulsory pension payments from employees, to replace a more opaque NI system.

This fully funded pension pot, dubbed the ‘universal contributory pension’, could be administered alongside the auto-enrolment initiative to “relieve the funding burden” on the next generation, according to the report.

This pension pot should be fully transferable so that employees remain in the same scheme when they change jobs and that families can access savings, free of inheritance tax, should a member die before state pension age.

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Ben Thomson, chairman of Reform Scotland, said: “The key problem with our pension structure is that those faithfully paying NI and those paying into a public sector occupational pension scheme have no ownership over their pension assets.

“This is hugely insecure and unsustainable. It’s time to grasp the nettle on pensions and end the conspiracy of silence that exists in all political parties on this issue.”

Adviser view

Clayton Cumming, partner at Glasgow-based Advice & Wealth Management Solutions, said: “We have to start forcing people to save for their futures so they do not rely on the diminishing state pension. Young people with families in their 30s put off saving until they are in their 40s and 50s, by which time it is too late.”

Scotland: National Insurance raised and state pension expenditure

Scotland £m2003/042004/052005/062006/072007/082008/092009/102010/112011/12
Amount raised in NIC612865336925730478737988799780188393
Amount spent on pensions495050515246549559036545701573647875
Pension spending as % of NIC funds81%77%76%75%75%8288%92%94%

Source: Reform Scotland