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Should National Insurance be scrapped?

Malcolm McLean’s unique pension insight is in great demand to make sense of the massive change taking place in the sector and the £140 a week flat rate pension proposal is a case in point. He talks to John Greenwood

When Malcolm McLean left The Pensions Advisory Service in April to take up a roving media role with Barnett Waddingham, he could not have expected that demand for his services would be quite so high.

Back then, a flat-rate state pension was a long-term aspiration of the smallest of the three main political parties, Nest and auto-enrolment were under serious question and no one had a clue how to deal with public sector pensions.

Seven months and 50 radio and TV appearances later, McLean is finding the phone ringing off the hook, with the likes of the Today Programme, Sky News, Moneybox and most of the national press regularly demanding his perspectives on the seismic changes hitting the world of pensions.

McLean says: “Demand has never been higher because everyone is so confused by the massive changes that are being put forward.”

McLean’s work at TPAS has given him a unique insight into the issues that face the millions of people who never see an IFA, experience he is now channeling into explaining to the public the various changes to the state, private and workplace pensions currently working their way through government.

The recent announcement of a proposal of a flat-rate pension of around £140 a week payable to all is a case in point, showing what a mammoth job the Government has bringing the public on board with a simplification programme that is fraught with complexity.

“When it was first written about, people were confused because it was not made clear that this change will only apply to new pensioners. We had people thinking it is brilliant because they thought they were all going to get it and then a day later people are talking about pensions apartheid,” he says, referring to media and public reaction to the news that existing pensioners would be excluded from the £140 a week state pension bonanza.

“Any time they try to simplify the rules, they end up complicating them. If you have a complex set of rules and only simplify them, you still have two sets of rules – one complicated and one simple.”

Potential bear traps around immigration and fraud
McLean thinks it inconceivable that the flat rate pension would remove S2P and Serps that have already accrued. “People who paid into Serps will be concerned that they would lose out. I think you would end up getting £140 a week plus the Serps or S2P you have accrued on top of that.”

He also sees potential bear traps around immigration and fraud that will need delicate political solutions. “If it is granted on a shorter residency basis, this will question in people’s minds why they have to pay National Insurance in future. What sounds like a great simplification could end up getting linked to immigration. And the fraud risk is real. It is relatively easy to fabricate a fake ID whereas it is not easy to fabricate repeated National Insurance contributions.”

’Tom McPhail got criticised for the Panorama programme. I was on that programme too and we were all skating on thin ice’

The event that has caused the biggest media demand for his services to date has been the publication of the Hutton report, a document for which he has the highest praise. “Hutton went right to the heart of the issue of the pension apartheid between public and private sector workers. I thought his report was fantastic and he came down very clearly with the view that he did not think final-salary pensions were sustainable. It was a very brave thing for Hutton to do it. And it was also clever of the Government to bring him in to do the review as it locked the Labour party into the consensus on the need for change.”

McLean’s new role at Barnett Waddingham is similar to that of Tom McPhail’s at Hargreaves Lansdown – public affairs and media and no client contact.
“My job is completely different to that of the rest of the advisers there. I am not there to sell products.” He adds that he feels able to comment more freely now he is no longer part of a Government-funded organisation, not least because of pressure from above during his time at TPAS.

“I was never jumped on but I was nudged from time to time on a few things. People in government would occasionally suggest to me that I was being too political. For example, when all those people lost their pensions when their employer collapsed and there were shortfalls in their pension funds, I was supportive of them and I thought that it was right that they be compensated. Ultimately, that has lead to the Pension Protection Fund, which was a good thing, but my position was getting political.”

So, how did this pressure manifest itself? “I was never directly told what to say but people suggested that I might be straying into sensitive areas and suggested I should be careful. But 99 per cent of the time I was independent and could say and do what I liked.”

McLean gives the air of a man comfortable with taking a pragmatic approach and understanding the role he has been given and its limits.

“It is not quite a question of who pays the piper but I am in a similar situation at Barnett Waddingham where I would not want to do or say anything that was critical of actuaries. That situation arose recently when I was asked on the Jeff Randall show on Sky News whether actuaries should be blamed for the failure to spot the longevity issue sooner. The answer might be yes in a roundabout way but I would not put it in quite that way.”

McLean points out that this is an issue that all media pundits face at some time or another. “You look at Ros Altmann – she has just gone with Saga. She is aware that Saga sell annuities and that there is a potential problem there but she knows how to deal with it and is strong enough not to let it affect her.”

McLean also appears comfortable with the idea that taking positions in public is going to get him in hot water from time to time.

“The same can be said of Tom McPhail. He got criticised for the Panorama programme. I was on that programme too and we were all skating on thin ice. But Tom said something about a lack of value with active management and ended up upsetting a lot of IFAs.”

Given the extent of his media coverage, the Department for Work and Pensions will be pleased that McLean is supportive of auto-enrolment and Nest and sees pension minister Steve Webb’s efforts to resolve the means-testing issue as essential to its success.

“This is a critical factor in the rollout of auto-enrolment and Nest. Many of the key personal finance editors of the national papers and people like Ros Altmann are critical of Nest. All it takes is a front-page story in the Sun or the Daily Mail to turn everybody against it. If everybody opts out of it, then it will have failed, so we need to get state pension at a reasonable level.”

McLean believes the already radical proposals put forward could ultimately lead to an even more radical overhaul of the taxation system.

“Being radical, if you wanted to make even bigger savings, you might ask the question whether we really need National Insurance any more. The answer might be yes because you still need to establish entitlement to contributory jobseekers allowance and incapacity benefit. But maternity benefits operate differently and you could do the same for these benefits. Once National Insurance is not going towards pensions, people will start to wonder just what is it being paid for. Getting rid of it would create a massive saving but would also have a significant effect on the employment rate in Newcastle.”

Having worked in Newcastle himself, as head of the Pensions Advisory Board, the body that preceded the Occupational Pensions Regulatory Authority, McLean has first-hand experience of what the abolition of National Insurance would mean for the city.

’Being radical, if you wanted to make even bigger savings, you might ask the question whether we really need National Insurance any more’

“In Newcastle, the National Insurance contributions office is known as ’the Ministry’. I went on a tour their years ago and there is a corridor that runs for two miles through this huge complex and off this corridor are thousands of people working out everybody’s National Insurance contributions. At the time, it was claimed it was the second-biggest office complex in the world, after the Pentagon,” he recalls.

McLean got that job as head of the Occupational Pensions Board when the incumbent managing director resigned in protest at the 1994 Good report that described it as a “toothless tiger” and called for its abolition within three years.

“I was a career civil servant at the time and somebody in government said ’you’re good at closing things down’. This was because I had closed down the Milk Tokens Surrender Unit, a body that belonged in the 19th Century. I went to Newcastle and on day one I was greeted by the trade unions but we put in place a personnel strategy and got on with the job and ran it down in two-and-a-half years, after which I moved to TAPS.”

After 13 years at TAPS, McLean was not pleased to see it on a list of quangos heading for the bonfire and is glad such a fate has not been meted out. “It is theoretically possible for TAPS’s work to be done by other organisations. It has two elements, dispute resolution and mediation and a secondary role of general information and guidance.

“On dispute resolution, the Ombudsman could take that role over. The problem is that the Ombudsman cannot go too far down the mediation rate as it will ultimately be making a determination in the event that mediation fails. These roles should be carried out by separate bodies. I also believe the 450 volunteered volunteer advisers that we have will not fit into the ombudsman culture very well. But surely in the Big Society that David Cameron is trying to push, this would not be something that they would want to get rid of.”

McLean is clearly proud of what TAPS has achieved and is sceptical of the benefits of mass-market imitations.

“When it comes to the information and guidance function, there is the new Consumer Financial Education Body that has come out of the Therese review. That is part of the FSA and is now a separate agency. They are offering information and guidance, not just on pensions but on a wide range of matters. But they have a call centre mentality. We at TAPS did not see what we were doing as a call centre. We had no targets that you must clear six calls an hour. This is because many callers did not even know what the question was so they would need often a long time to get any real assistance. Having people on the end of the phone working to a script does not work for pensions. So there is definitely a case for TPAS to continue.”

Few would argue there is also definitely a case for McLean to continue delivering perspectives on today’s huge pension changes that cut through the hyperbole and communicate the real meaning of what the politicians are up to.

Malcolm McLean

  • Born Clitheroe, Lancashire
  • Lives Bath and London
  • Job: consultant, Barnett Waddingham,
    April 2010-present Former roles include The Pensions Advisory Service chief executive
    1997-2010; Occupational Pensions Board general manager/managing director
    1994-1997; Civil servant in Department for Social Security on pensions policy – seconded to Barclays Bank for a year

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Comments

There are 4 comments at the moment, we would love to hear your opinion too.

  1. Yes

    Our taxes are far too complicated, too many and too high

  2. NI disappeared long ago. Its revenue is now just part of general taxation and is merely an unnecessary complication…

    Replacing it however would doubtless introduce yet more complications

  3. A beefed up Basic State Pension of £140 p.w. with full SERPS/S2P entitlements accrued to date on top? I don’t quite think so.

    There’ll have to be some adjustment or offset, perhaps deducting from your accrued SERPS/S2P entitlement the difference between the current and new levels of BSP. I can’t see how it could be any other way.

    By the way, as a small matter of correct English usage, it’s different FROM, not different to.

  4. The whole system is unnecessarily complicated and grossly unfair. More changes will, if history tells us anything, make it more complex and more unfair.

    Why should a self-employed 60-year old person who has no entitlement to any benefits from the State other than the State pension, having paid taxes and NI for 44 years already, have to continue paying Class IV and Class II right up to age 65.

    Especially when anyone over the age of 60 who is unemployed can claim pension credits OR a non-UK national woman who comes to live here, isn’t employed, pays nothing in to the system but draws a multitude of benefits for numerous children over a 30-year period, then becomes entitled to a full State pension.

    And what about women who retired a year or two ago who worked for more than 30 years (but not 39) and are in receipt of only a part-pension. They must be rather upset that a woman retiring now will be entitled to a full pension.

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