Jeff Salway: Why focus on NI could spark campaign for higher state pension

NATIONAL Insurance contributions (NICs) have been firmly established as the political football du jour as the election campaign heats up, yet the original intentions behind the creation of National Insurance have been ignored.

According to the Conservatives, plans to increase NICs next year constitute an attack on jobs, while the government claims those plans will support spending on schools, the police and the NHS. But in the search for political capital, both parties are guilty of misleading the public as to the purpose of National Insurance, according to the National Pensioners Convention (NPC).

It has pointed out that NICs are supposed to fund state pensions, unemployment benefit, the NHS, sickness and disability allowances and other benefits, including the annual Christmas bonus. Of that, the NHS accounts for a tiny proportion and while the government can borrow from the National Insurance fund, it is not designed for spending on schools or the police.

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More interesting, and little acknowledged, is the fact that the National Insurance fund has a surplus balance of 54 billion, a figure that is predicted to double in the coming years.

The main reason for this is the severing of the link between average earnings and pensions, which means that, while NIC funds continue to increase roughly in line with average earnings, the benefits paid out by the National Insurance fund have risen only in line with inflation.

You might think that, with state pensions well overdue a substantial hike, more might have been made of this surplus. Since the mid-1980s, however, successive administrations have managed to avoid this through a series of measures designed to prevent the fund reaching a size at which they would face demands to use the surplus to increase benefits.

Of course, the argument over NICs primarily concerns the impact on employees and employers and how the Tories propose to fund their proposed reforms. But the NPC is right to point out that, if higher NICs go towards the benefits they were initially designed to fund, in the form of improved state pensions, for example, the proposed increase would doubtless garner more support.

Pensioners are clearly not the target demographic in this election, but, as the population ages, there will be more focus in future elections on pension benefits. It's a long shot, but the current furore may have the unintended effect of shining new light on how NICs are used, reinforcing the argument for better state pension benefits.

BANKS came under fire from Consumer Focus last week for making it difficult for savers to get the best Isa deals. They were accused, among other charges, of creating an unnecessarily complex market, with a variety of rates, account structures, bonuses and caveats that served only to undermine the Isa market.

The watchdogs would be wise to keep an eye on similar issues in the current account market as it grows more complex. The number of current accounts available has doubled in just three years, according to research by Moneyexpert. It warned that, as the banking market becomes more competitive, the range of accounts offering different fees, interest rates, incentives and charging structures will make it harder for consumers to make meaningful comparisons. Accounts are becoming more "tier" based, with higher rates for lower credit deposits and higher overdraft rates for customers borrowing more.

Many bank customers will benefit from greater competition, but, as the market become more complex, those unwilling to switch accounts will pay a steeper price for their apathy.