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National Insurance

Updated: Aug 20, 2021

This encompasses all the various aspects of insurance benefits for which the State is responsible, including sickness benefits, unemployment pay, maternity benefits and other money payable to cover known contingencies, e.g. retirement and widows’ pensions. It is ultimately the responsibility of the Department of Health and Social Security, which also pays other supplementary benefits as ordained by current legislation. The central fund is financed principally by contributions paid by employed persons earning over a fixed minimum and partly by the Exchequer out of general taxation. These contributions are in two parts, the smaller being deducted from wages through P.A.Y.E., and the larger paid directly, on behalf of the employee, by his employer. Self-employed persons contribute by purchase of National Insurance stamps from the post office. Now, all contributions are earnings related, as are retirement pensions, though where an employer can demonstrate that he can provide a private scheme equal to, or better than. The State scheme, he has the option of contracting out of the latter. In an occupational pensions scheme, the contributions payable by the employers and employees to the State, through National Insurance contributions, will be much lower than in the State scheme. The fact that they still must contribute to the State fund, even though they have obtained a contracting out certificate, is explained by the fact that the State scheme covers not only retirement benefits but also the running of the National Health Service. It also provides a basic pension to all retired persons.

National Insurance should be distinguished from what was once known as National Assistance and is now referred to as supplementary benefits. These are semi-gratuitous payments paid to persons for whom ordinary National Insurance benefits are inadequate, due to exceptional circumstances of distress. In fact, if not in theory, supplementary benefits are avail¬ able for multifarious reasons and anyone who considers that they suffer particular hardship, irrespective of the reasons, can apply for them. The system which allows these benefits to be paid has evolved from the application of successive and, to a large extent, arbitrary Acts of Parliament; in view of the abuses which it tolerates, it is in dire need of reform by some type of consolidating legislation.

Reference: The Penguin Business Dictionary, 3rd edt.

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James Knight
Editor of Education
James is a lead content editor for Invezz. He's an avid trader and golfer, who spends an inordinate amount of time watching Leicester City and the… read more.