National Insurance  

Pensions deemed safe as NI fund posts surplus

Pensions deemed safe as NI fund posts surplus

The National Insurance fund has reached a surplus of £2.3bn in 2017/18, which, some say, indicates that 'no cuts to pensions will be needed in the short term'.

According to HM Revenue & Customs' (HMRC) Great Britain National Insurance Fund Account 2017-18 published yesterday (16 October), funds had recovered from a £1.2bn deficit in the previous year.

The main reason for the improved position of the fund – which pays out state pension and other social benefits - is an increase of more than £5bn in NI revenues, while outgoings only rose by £2bn. 

The report showed the fund had a balance of £24.2bn at the end of March, which was above the estimated £16.8bn minimum requirement throughout the year.

This means the fund did not need to draw down from the Treasury grant, a situation which accounting officer Jon Thompson expects to continue next year, he said in the report.

However, as a contingency, a provision has been made to draw down a Treasury grant of up to 5 per cent of estimated benefit payments, should it be required. This equates to about £5.1bn.

One reason for the slower growth in spending was the increase in state pension ages together with squeezes on benefit upratings, provider Royal London said.

Sir Steve Webb, director of policy at the mutual insurer and former pensions minister, said the surplus meant there was now no need to make any cuts to pensions.

He said: "Any idea that pensions will have to be cut to stop the fund running out of money can be firmly discounted.

"There is, of course, a long-term pressure on the public finances as the population ages, but these figures confirm that there is no short-term crisis."

FTAdviser reported in January that the NI fund could run out of money around 2032, and NI contributions would need to rise by 5 per cent to sustain it.

HMRC’s most recent report also showed that people were making use of the opportunity to top-up their NI contributions, which will boost their state pension.

The amount of money being paid in voluntary (Class 3) NI contributions had increased fivefold, from £12.8m in 2016/17 to £69.1m in 2017/18. 

Sir Steve Webb added: "For the right people, the chance to top up their state pension through paying voluntary NI contributions represents an excellent investment."

Paul Gibson, managing director of Granite Financial Planning, said: "Whilst a surplus is always better than a deficit, the issue remains that the triple lock on state pensions remains unaffordable long term. 

"People are living far longer and there are fewer taxpayers so something has to give going forward. A relatively small surplus in one year is not going to fix the problem."