Pension Funding
Why the UK CAN afford to
Grant Parity
As a result of a Freedom Of Information (FOI) request recently made to the Debt Management Office (DMO), Commissioners for the Reduction of the National Debt (CRND), with whom the balance in the National Insurance Fund (NIF)are invested the amount of NIF balance deposited is over £45 billion.
The balance used to be invested in Government Gilts but since December 2006 it has been invested in a Call Notice Deposit Account with the CRND which apparently has lower administration fees, etc.
The table below summarises the vast amount of money held in the NIF. Note particularly that the amount of interest generated each month is of the order of £200 million.
The government uses the NIF balance money through this mechanism and so tries to justify an argument that any reduction in the NIF will remove money used to build schools and hospitals. (see Where does our money go ?) Of course, they are in reality borrowing the money from the NIF and so if any of that money was removed for NIF purposes, they could just as easily borrow the money from elsewhere.
Here is a table of the figures provided by the DMO on the National Insurance Fund - Call Notice Deposit Account since December 2006. The numbers are transcribed exactly as provided by the DMO, Commissioners for the Reduction of the National Debt, in their FOI response letter dated 19 June 2008. The jump between Dec-06 and January 07 is when all monies invested in Government Gilts was transferred over to the CND Account.
| Month End | CND Holding (£ ) | Month Interest CND (£) | CND Rate (%) |
| Dec-06 | 18,396,672,000.00 | 73,633,052.88 | 5.00 |
| Jan-07 | 38,120,956,000.00 | 120,952,015.81 | 5.25 |
| Feb-07 | 38,635,388,000.00 | 152,592,381.11 | 5.25 |
| Mar-07 | 38,646,381,000.00 | 169,246,265.29 | 5.25 |
| Apr-07 | 39,991,086,000.00 | 167,262,162.85 | 5.25 |
| May-07 | 41,541,789,000.00 | 184,406,887.04 | 5.50 |
| Jun-07 | 42,946,596,000.00 | 182,451,165.48 | 5.50 |
| Jul-07 | 43,748,219,000.00 | 206,157,684.09 | 5.75 |
| Aug-07 | 44,091,105,000.00 | 213,670,890.86 | 5.75 |
| Sep-07 | 44,578,267,000.00 | 206,917,560.13 | 5.75 |
| Oct-07 | 44,207,493,000.00 | 215,364,593.20 | 5.75 |
| Nov-07 | 44,926,858,000.00 | 207,014,672.74 | 5.75 |
| Dec-07 | 44,781,428,000.00 | 209,182,811.28 | 5.50 |
| Jan-08 | 46,235,003,000.00 | 208,395,499.97 | 5.50 |
| Feb-08 | 47,519,351,000.00 | 195,662,676.13 | 5.25 |
| Mar-08 | 49,178,183,000.00 | 209,346,081.45 | 5.25 |
| April-08 | 50,011,660,000.00 | 205,097,485.00 | 5.25/5.00* |
| May-08 | 52,934,957,000.00 | 212,945,516.00 | 5.00 |
| June-08 | 50,255,054,000.00 | 208,171,797.00 | 5.00 |
| July08 | 49,230,374,000.00 | 207,411,629.00 | 5.00 |
| August-08 | 49,689,686,000.00 | 207,660,502.00 | 5.00 |
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* Base rate changed from 5.25% to 5.00% on 10 April 2008 |
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The sum of the holdings fluctuates due to intra m deposits and withdrawals.
The inclusion of pounds and pence in the response highlights the fact that
these are the actual amounts of money involved and also highlights the fact
that the supposed cost of uprating all overseas pensions, of £400 million a
year, could be covered by just 2 months worth of interest from the monies
invested.
The response also states:
The Call Notice Deposit Account is an overnight facility that pays interest
to the Fund at the prevalent Bank of England Bank Rate. Interest accrues on
a daily basis, but is paid at month-end.
Since January 2007 the Fund owners (HMRC) have, in conjunction with the
Commissioners for the Reduction of the National Debt (CRND), adopted a
strategy of investing 100% of the Fund in this facility, on the grounds that
it offers maximum liquidity for withdrawals (or deposits) out of (into) the
Fund on a day-to-day basis, with minimum transaction costs, while still
retaining zero credit risk (as the monies are deposited with HM Government’s
Debt Management Account, administered by the DMO) and the guarantee that the
Fund will always earn a fair and observable market rate of interest, without
CRND having to participate in “active” management of the Fund. This in turn
has reduced administration costs levied on the Fund.
It might be enlightening to quote these details to those doubters who do not
believe there is an actual National Insurance Fund to demonstrate that the
National Audit Office, the Government Actuary Department, Her Majesty’s
Revenue and Customs, the Debt Management Office, the Commissioners for the
Reduction of the National Debt and the Bank of England all think there is a
National Insurance Fund, the details of it are provided above.
If you go to your own bank to see your own bank deposit, the bank could say
“it is invested in loans and mortgages” – in that sense your deposit does
not exist – it is merely a number on a piece of paper - just like the
National Insurance Fund. But in the NIF case it is backed up by cash
deposits that can be redeemed at a day’s notice into actual cash.
The Civil Service Pensioners' Alliance,
in their Newsletter No 46 dated 31st July this year (2008) has caught on
too.
The following is an extract from their Newsletter:
THE NATIONAL INSURANCE FUND
For years we have been saying that not only is the National Insurance Fund
in balance, but also that the balance is being spent on things other than
National Insurance benefits. At first the Government did not even
acknowledge there was such a thing as the National Insurance Fund. Then we
were able to get the Government Actuary’s report which detailed the balance,
namely for the last financial year £47 billion, with a forecast rise to the
financial year 2012 – 2013 of £114 billion. The Government had to
acknowledge the money was there, and now finally, the Government acknowledge
that this money is being spent on things other than National Insurance.
Mike O’Brien QC, MP, the Pensions Minister, has said “The balance is invested in public services such as schools and hospitals. The National Insurance Fund operates within the wider fiscal framework and it gives the Government the flexibility to determine its spending priorities in light of the overall economic conditions prevailing in the UK. If this were not the case, the Chancellor would need to raise the equivalent through other means such as raising taxes.”
So, the Alliance was right all along. The money is there to pay improved
pensions; the Government instead want to use that money to keep other
taxation low. It seems immoral to us that money is taken from working people
and their employers to pay National Insurance benefits, the principal one
being the State pension, and then it is used on other items. The country can
afford a significant improvement in the basic state pension and can afford
to re-link to earnings. We need to continue to press our MPs that money put
aside for pensions is spent on pensions.
The Newsletter is signed off by John Amos, Deputy General Secretary of CSPA.
See also Where does our money go ?