The National Insurance Fund

• The National Insurance scheme was established on 5 July 1948 to provide unemployment benefit, sickness benefit, retirement pensions and other benefits where individuals meet the contribution and other qualifying conditions, such as the annual Christmas Bonus.
• Currently, employees contribute 11% of income between £111 and £844 a week and 1% above £844. Employers pay 12.8% on all income above £94. Employees contracted-out of the state second pension get a NI rebate of 1.6% of earnings between £111 and £844, and their employers get 1% to 3.5% depending on their scheme.
• From these contributions an allocation is made towards the NHS of 2.05% of the first slice of eligible earnings from employees and the full 1% on income above £844. Employers pay 1.9%. The remainder goes into the fund, and can only be used for the payment of benefits or the cost of administration.
• In principle, the National Insurance Fund operates on a pay-as-you-go basis, the contributions received in each year being used to pay pensions and other benefits in the same year. In this respect it differs fundamentally from private pension funds, which need to build up reserves to cover their future liabilities.
• The Government Actuary, who reports on the state of the Fund each year, also recommends that the Fund should also keep a balance to cover any unexpected short-fall in income of not less than two months’ benefit expenditure.
• Currently, the Government Actuary reports that the Fund has a surplus balance of £52bn, which is expected to rise to £102bn in just a few years.
• The clearest explanation of the Fund comes from a House of Commons Library Note dated 14 November 2008, which states:

"The Fund is ring-fenced and cannot be used for expenditure other than on the benefits specified by statute (section 163 of the Social Security Administration Act 1992). The Fund is reviewed every year by the Government Actuary, who reports to Parliament on the effect of any changes to contributions or benefits and on the state of the fund.

The investments of the Fund are dealt with by the Commissioners for the Reduction of the National Debt under a Memorandum of Understanding with Revenue and Customs (and is an Executive Agency of the Treasury). The Investment Strategy previously required any balance to be in gilt holdings with a maturity of less than 20 years. In 2007, 57% was in stocks with a maturity of under 1 year.

However, since January 2007 the Fund has been fully invested in the Government's Call Notice Deposit Account, administered by the Debt Management Office. This is an overnight account facility so the Fund has maximum liquidity for withdrawals or deposits out of or into the Fund on a day-to-day basis.

It must be understood that these funds are on loan to the Government - there is no question that these funds are being spent."