Today the Government Actuary's Department (GAD) published its Quinquennial Review of the National Insurance Fund (as at April 2000). The main purpose of the review is to estimate the contribution rates required to be paid to the National Insurance Fund of Great Britain in future years in order to meet expenditure on a pay-as-you-go basis under the current benefit and contribution structure.

The review considers projections of future income and expenditure up to the year 2060/61, noting that projections over such long time periods are subject to considerable uncertainty. It provides some ammunition for those who argue for an increase in contracted-out rebate levels. On the other hand, it also contains a sobering counter to the argument that flat rate state benefits should in future be increased in line with earnings, not prices.

Key findings of the review include:

• the pensioner support ratio (the ratio of the number of people at working ages to those over pension age) is projected to fall from 3.3 in 2001 to 2.4 in 2060. This ratio is important because, under the pay-as-you-go principle, the benefits for those over pension age generally need to be financed by contributions from those of working ages. This projection assumes no significant change in UK government immigration policy eg to encourage more foreign workers to come to Britain.
• the National Insurance Fund is presently in the black (ie in recent years, income has exceeded expenditure). For 2003/04, the combined (employer + employee) Class 1 rate, excluding the contributions allocated to the NHS, is 19.85%. The GAD estimates the rate currently required to balance expenditure is 19.1%.
• assuming flat-rate benefits and earnings limits remain linked to RPI, this 'surplus' would be expected to continue to increase in the future, both in absolute terms and as a multiple of annual expenditure, if the current rates of contribution continue.
• current Government policy is to increase the basic state pension by the greater of RPI and 2.5%. Even if this underpin were to apply every year up to 2060/61, with price uprating and assuming 2% pa real earnings growth, the combined contribution rate required to balance the Fund would only increase from 14.9% to around 16 or 17%.
• under price uprating (and without taking into account the current BSP underpin policy as above), expenditure - including contracted-out rebates and administration costs - is projected to fall from 6.2% of GDP in 2001/02, to 5.4% of GDP in 2060/61 with 1.5% per annum real earnings growth; or to 4.6% of GDP in 2060/61 with 2% per annum real earnings growth.
• in contrast, if a future government switched to earnings uprating, expenditure would increase from 6.2% of GDP in 2001/02, to 8.9% of GDP in 2060/61 with 1.5% per annum real earnings growth, or to 8.7% of GDP in 2060/61 with 2% per annum real earnings growth.
• under earnings uprating, the balance in the Fund would be likely to fall to zero during the next 10 to 20 years, at which point the contribution rate would need to rise to the full pay-as-you-go rate. By 2060/61, the projected combined contribution rate would have risen to at least 27%.