There are two ways of looking at the national insurance fund. Prem’s tweet has a lot of fun photos but not much sensible comment.
I am pleased this rebuff is coming from Dan Neidle. This is the kind of issue that should be on the agenda of the Pension Commission and I am neither totally with Prem or Dan.
The National Insurance Fund Account has a surplus of £86.4bn.
Plenty of resources to increase pensions, benefits, compensate the 1950s women.
Govts raid it to fund NIC cuts for the rich, NIC holidays in freeports, and general tax cuts for the rich.https://t.co/6YlSr62bW3
— Prem Sikka (@premnsikka) July 31, 2025
Prem’s correspondence switches from twitter to linked in as Dan posts
First, that “surplus” is there for a reason: as a buffer to cover pensions/social security for an aging population. The Government Actuary estimates that the fund will be exhausted by 2043/44
Take money out of the fund now, and we hit a fiscal crisis in 20 years’ time
Second, governments have not “raided it to fund NIC cuts for the rich”. There have been no NIC cuts for the rich in my lifetime.Third, whatever “general tax cuts for the rich” Sikka is talking about haven’t affected the national insurance fund. Only national insurance cuts would affect the fund.
Fourth, the NIC exemption for freeports costs about £10m. Irrelevant to an £86bn fund.
I don’t know if Sikka sets out to mislead, because he likes clicks, or if he simply has no clue about accounting and tax. Either way, it’s deeply embarrassing he’s a member of the House of Lords.
This is a real debate, the kind of debate between a conservative accountant and a socialist Professor of accounting. I can see where both are coming from and my heart is with Prem.
If we cannot assume growth in our economy and use our available capital as Prem suggests then where is our ambition as a nation. If our economy is to replicate what we did in the first quarter of this century in the second I would be with Dan but there should be no target to achieve that, that would be failure.
Instead we must plan to grow, not just by investing private funds but also the public fund so that we have a better motivated and a more productive workforce.
Prem Sikka did not inherit his peer ship. Dan Neidle has been 24 years at Clifford Chance one of our finest professional partnerships.
What this conversation tells me is that I can understand public finance through two minds and two articulations of those minds. I’d like to thank the two gentlemen and hope that if they meet in passing, they will remember they can both be wrong and right in the eyes of the public!
I’m a friend and colleague of Prof. Prem Sikka, who is valuable member of the House of Lords for a range of reasons, not least as a leading academic in the field of accountancy. It is Dan Neidle’s intemperate comments that are the embarrassment, as he is clearly wrong in what he says about the NI Fund.
First, he states the Fund is “a buffer to cover pensions/social security for an aging population”. This is simply untrue. The NI system is funded on a pay-as-you-go or unfunded basis and there is no provision for balances to be built up to pay future benefits. Some may regard such reserves as desirable and the existence of the accounting reserves might lead them to some post-hoc rationalisation. But this is just wishful thinking.
Second, I have no doubt that the increase in reserves is not in any way driven by a wish to fund future benefits. It is simply the outcome of the intention to avoid increasing income tax. Prem is clear in his view that such an increase should fall on richer people, for example, taxing investment income like earned income.
In summary, it is entirely coherent to argue that NI contributions have been set higher than necessary, not because it builds up the NI Fund, but in order to avoid increasing tax on rich people. It is worth noting that recent changes in NI contributions, under both governments, have been made without any proper assessment of their impact on the Fund. We have to await the forthcoming quinquennial review from the Government Actuary to get any real idea of where the Fund is going.
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I think Dan is a legal
expert, not an accountant, Henry.
GAD’s quinquennial reviews, tie in with the electoral cycle, I suppose. They’re actuaries, not accountants.
I declare an interest, and not just as a retired accountant.
My wife and both my sisters-in-law qualify as Waspi Women, but none of them expect (or need, to be honest) a top up to their state pensions.
Our Scottish Parliament voted unanimously in January in favour of the UK paying them and other Waspi Women compensation, the kind of empty grandstanding about our devolved parliament which irks me whenever they do things like this.
The Scottish Parliament vote was, however, linked to last year’s report on the GB (UK?) National Insurance Fund Account (for the year ended 31 March 2024).
In particular, some seized on the part which said “The balance of the Fund at 31 March 2024 was £86.4 billion and was above the estimated minimum requirement throughout the year.”
(The NI investment account had £88.1bn of assets, so I presume £86.4bn in the Fund is net of something.)
HM Treasury were said to have set aside another £6.5bn, if needed. Nearly £93bn by my reckoning.
Not clear to me gif the Scottish Patliament members had noted an earlier part of that 2024 report: “The minimum working balance required to be held for 2023 to 2024 was estimated at £21.8 billion, being 16.7% of estimated benefit expenditure.” That is, two months’ benefit outgo.
As a DB pension trustee, admittedly in the private sector, not Treasury-backed, I preferred a cash buffer of six to twelve months’ benefit payments.
Anyway, by my reckoning even a 2024 year-end balance of £86.4bn only covers about two-thirds of the estimated annual benefits expenditure.
But these cherrypicking MSPs were comparing the NI fund “surplus” with the range of estimates of Waspi compensation from between £3bn and £36bn, depending on whether the average top up per pensioner was £1k or £10k.
But if HM Treasury did/do have an additional £6.5bn set aside, then maybe the Waspi women have a point?
The 31 March 2025 National Insurance Fund Investment report is now available, but Professor Sikka refers to the previous year’s. Not sure why.
As at 31 March 2025, the total value of investments held by the NIFIA had decreased to £78,462 million (31 March 2024: £88,115 million). This decrease was due to a net withdrawal of funds by the NIF during the year. But if the budget is just two months’ benefits outgo, this is still four times the budget “cushion” requirement.
GAD’s annual report on the NIF in January 2025 projected contribution income and benefit expenditure up to the end of the 2029 to 2030 financial year.
The GAD report set out how the NIF balance was projected to reduce to £76 billion at the end of the 2024 to 2025 financial year [the outturn was nearly £78.5bn, so GAD was nearly £2.5bn out, it seems) before increasing each year thereafter up to 2029 to 2030 as the new NI rates take effect.
GAD’s actuarial prudence.
NI contribution income is now estimated by GAD to exceed benefit expenditure in every subsequent year of the projection period to 31 March 2030, resulting in an increasing NIF balance.
So I’m frankly unclear as to how this “surplus” all disappears, according to GAD, by 2043/44.
15-love to Waspi Women.