APPENDIX 7
Memorandum from the Southwark Pensioners'
Action Group
SUMMARY
Over the past century, the Government Actuary's
Department has acquired a reputation for professionalism, independence
and objectivity. It is essential that its independent status should
be preserved.
The annual uprating reports would be more useful
if they were published at the time of the uprating statement in
November, rather than when the uprating orders are laid in January.
It would be even more useful if the Government
Actuary were asked to report on the state of the National Insurance
Fund in advance of the uprating statement.
The DSS should be asked to report on the feasibility
of reducing the interval between announcement and implementation
of the uprating, thus allowing the Government Actuary's report
to be published nearer to the uprating date.
The annual uprating reports should include medium-term
projections.
THE GAD'S
REPUTATION
The main functions of the Government Actuary's
Department (GAD) have always been in the field of social security.
Its history goes back to the beginnings of the British social
security system in the early years of the last century. Over that
period it has acquired a reputation for professionalism, independence
and objectivity. Its work and the published reports based on it
are highly respected both by other Government Departments and
by the wide range of outside bodies with an interest in social
security and the various types of non-state pension schemes.
The GAD's reports are virtually the only source
of information on the future prospects of the National Insurance
Fund. These reports include, on a regular basis, a quinquennial
report on the Fund's long-term prospects and reports on the shorter-term
financial implications of the annual benefit upratings and of
other proposed changes in the structure of national insurance
benefits. The GAD may also be asked to produce special reports
on particular aspects of the benefit system, a notable recent
example being the report required by section 36 of the Child Support,
Pensions and Social Security Act 2000 on the cost of uprating
the basic state pension in line with earnings.
In general, and increasingly so in recent years,
Government statistics are viewed with a degree of suspicion, in
the belief that "statistics can prove anything" and
that they are subject to a process of selection before publication.
No such suspicion attaches to the GAD's reports which are generally
accepted as presenting an unbiased view. This is particularly
important where, as has happened increasingly over the past 25
years, the GAD is asked to advise on the terms of contracting
out of the state pension scheme—advice which forms the basis
of the financial relationship between the state and private pension
providers.
In recent years, the Government Actuary's reports
have played an important role in revealing the massive surpluses
in the National Insurance Fund. The Fund theoretically operates
on a pay-as-you-go basis, with income and expenditure roughly
in balance year by year. It carries a working balance which, the
Government Actuary recommends, should be at least one-sixth of
annual benefit expenditure. Apart from this working balance, contributors
are entitled to assume that the contributions they pay will be
used to meet the current cost of benefits. The Treasury, however,
appears to regard the Fund as something of an irrelevance. NI
contributions are seen as a tax like any other, whose relationship
to benefit expenditure is little more than a historical accident.
Thus, the Fund has built up a large surplus which bears no relation
to its current needs, and this process is expected to continue
for some years ahead. The Government Actuary's reports have provided
regular information on this subject, which is highly relevant
to the public debate on state pensions policy.
A major factor in the GAD's unique reputation
and the confidence reposed in it is the fact that it is a separate
Government Department headed by highly respected professionals.
The Government Actuary sets his own standards and is not subject
to the supervision of Ministers or senior civil servants. It is
essential that this independent status should be preserved. Any
suspicion that the GAD was taking orders from the Treasury or
the Department of Social Security would quickly and permanently
undermine it. The point is well illustrated by recent events relating
to the Government Actuary's report under section 36 of the Child
Support, Pensions and Social Security Act 2000, of which an account
is given in the annex to this submission.
TIMING OF
ANNUAL UPRATING
REPORTS
Under the Social Security Administration Act
1992, the annual draft orders setting out the National Insurance
contribution and benefit rates for the ensuing year must be accompanied
by a report by the Government Actuary on the effect of the proposals
on the National Insurance Fund. The usual course of events is
that the contribution and benefit rates for the following April
are announced in November, following publication of the September
price index figures; but the draft orders, together with the Government
Actuary's report, are not laid before Parliament until January.
By then, there is no possibility of the report having any effect
on the uprating: the orders are nearly always approved without
a division (the Liberal Democrats' decision to vote against last
year's uprating is the only exception of which we are aware).
The uprating reports would be more useful if
they were published at the time of the uprating statement in November,
rather than when the uprating orders are laid in January. This
is what, in effect, occurred in November 2000, when the Actuary's
report under section 36 of the Child Support, Pensions and Social
Security Act 2000 was published on 9 November in the circumstances
explained in the annex below. The Administration Act could be
amended to enable the same procedure to be followed in future
years.
It would be even more useful if information
on the outlook for the National Insurance Fund for the following
year were available to the public and to Parliament in advance
of the uprating statement. The Government Actuary could be asked
to submit an annual report on the state of the Fund, taking into
account existing legislation and any changes which were known
to be under consideration, and including illustrations of ways
in which any unneeded surplus might be used or a deficit avoided.
This would enable public debate to take place before decisions
were announced.
Consideration should also be given to the timing
of the uprating statement itself. The interval between the statement
and the uprating is five months. While this might have been necessary
in the days when pension order books were produced by hand, it
cannot be necessary in modern conditions (in the case of the Minimum
Income Guarantee, which is now normally uprated in line with average
earnings, it leads to the absurd result that the April uprating
is based on the average annual rate of increase in earnings recorded
in the three months up to the previous July). The DSS should be
asked for a report on the feasibility of reducing the interval
between announcement and implementation of the uprating, thus
allowing the Government Actuary's report to be published nearer
to the uprating date. Comparison with the uprating timetable in
other countries could be enlightening.
MEDIUM-TERM
PROJECTIONS
The value of the uprating reports could also
be increased if they included medium-term projections, instead
of showing the effect of the uprating for the following year only.
The Government's decision on each annual uprating must take account
of its likely financial consequences for at least the next five
years, based on the GAD's advice, and there is no reason why that
advice should not be published. It is true that long-term estimates
are given in the GAD's quinquennial reviews, but these are based
on ten-year intervals. For example, the quinquennial report published
in July 1999 gives figures for 2000-01, 2010-11, 2020-21, 2030-31
and so on, but not for individual years between 2000-01 and 2010-11.
24 January 2001
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