National Insurance Fund

National Insurance Fund

The two National Insurance Funds hold the contributions of the National Insurance Scheme, set up by the British Government following World War II. In the Beveridge Report this was designed as part of a universal insurance system for all British people. There is one fund for Great Britain, and a separate fund for Northern Ireland.

The money is held in the two National Insurance Funds (NIF), separate from the Consolidated Fund. Contributions are not "taxes" because they are not directly available for general expenditure by the government.

The income of the NIFs consist of contributions from employees, employers and the self-employed, plus interest on its investments. The NIFs are used to pay for social security benefits such as state retirement pensions, but not for the means tested Minimum Income Guarantee and Tax Credits. National Insurance contributions as a whole finance the public healthcare systems in the UK (including the National Health Service in England), but contributions are paid into the funds net of money allocated to the NHS. Thus the NIFs do not hold money directed for the general provision of health services in the UK. The Government determines the total allocation for health each year and the allocation from each class contribution is calculated by the Government actuary.

Each year there is a surplus of the order of £2 billion. The Great Britain NIF had a surplus of over £34 billion as at 2005/06, £38 billion in 2006/7 and the Government Actuary's Department forecasts that this surplus will grow to over £114.7 billion by 2012.

This surplus figure has been revised in recent years due to errors in assumptions by the GAD and now is forecast to be just £30 billion by 2016. http://www.gad.gov.uk/Documents/Social%20Security/GAD_Report_2012.pdf

The surplus is loaned to the government through the Debt Management Office which is part of the Commissioners for the Reduction of the National Debt in Call Notice Deposits (previously invested in gilt-edged securities) and interest on these invested monies is paid to the NIF - £1.3 billion in the 2007/08 year.

The balance in the National Insurance Funds at the end of each calendar month can be seen at the following government website:

http://www.dmo.gov.uk/index.aspx?page=CRND/Fund_Portfolio

Levels of benefit and contributions are set following the advice of the Government Actuary, who recommends that a prudential balance of two months contribution revenue (about £8 billion) should be kept in the fund.