Scotland’s independent think tank
Scotland’s independent think tank

National Insurance is a “giant state-sponsored Ponzi scheme”, says think tank

Reform Scotland proposes new Universal Contributory Pension ahead of debate with Minister

Reform Scotland, the independent, non-party think tank, has labelled the UK’s National Insurance system a “state-sponsored Ponzi scheme” ahead of a pensions debate to take place today (Thursday) between Steve Webb MP, the Pensions Minister, and his Opposition Shadow Gregg McClymont MP.

The debate is co-sponsored by Reform Scotland and international law firm Pinsent Masons, and will take place at the firm’s Edinburgh office this afternoon (Thursday).

Reform Scotland has published a report, The Pensions Guarantee, which called for the replacement of the existing state and public sector pension schemes with a Universal Contributory Pension (UCP), to which private sector workers will also be required to contribute.

As part of the UCP, employee National Insurance would be scrapped and income tax will initially be increased by 7p to cover the decrease in revenue. In addition, the personal allowance will be increased to £12,000 and the tax system will be rebalanced in other ways to ensure it does not penalise lower earners.

Commenting ahead of today (Thursday)’s debate, Ben Thomson, Chairman of Reform Scotland, said:

“The UK’s system of National Insurance has effectively become a giant state-sponsored Ponzi scheme. People think their contributions are going into a pot to pay for their state pension, but they are not. They are actually being used to pay for today’s pensions and there is no certainty at all over when and on what terms those paying National Insurance will receive a state pension.

“The state pension and public sector Defined Benefit pension schemes are uncertain, unfunded and unsustainable. We cannot go on with our heads in the sand hoping that an increasingly stretched next generation will pay our pensions. The conspiracy of silence which has existed amongst politicians of all colours must come to an end.

“Today we’ll be urging the Pensions Minster and his Shadow Minister to grasp the nettle and adopt our Universal Contributory Pension – the UCP – which will be a fully-funded, mandatory system offering security and certainty for workers and a sustainable solution for the public finances.”

The key features of UCP are:

  • It is mandatory – all workers must contribute a minimum of 8% of their salary
  • The pension pot is chosen and owned by the worker, and is fully transferable
  • The retirement age will be chosen by the worker (any time after 60)
  • There will be a flat rate of income tax relief
  • Pensions Credit will continue to provide a minimum guarantee

The UCP would apply to all workers in the public and private sectors. The state pension would be phased out over 45 years, and public sector Defined Benefit schemes would be closed for new members and stop accruing for existing members.

These would be replaced, in a phased way, by the UCP, providing more equality between, and security for, public and private sector workers. Public and private sector workers alike, with their trades unions, could negotiate the terms of the contributions made by their employer.


  1.  Reform Scotland is an independent, non-party think tank that aims to set out a better way to deliver increased economic prosperity and more effective public services based on the traditional Scottish principles of limited government, diversity and personal responsibility. Further information is available at 

    2. Pinsent Masons is a global 100 law firm employing over 2500 people in total, including over 1500 lawyers. The firm has market-leading UK coverage, with a significant presence in each of the UK’s three legal jurisdictions. Its international profile encompasses four offices in Asia Pacific, two offices in the Gulf and two offices in Europe. The firm also launched a presence in Turkey in 2013.

    With over 350 fee earners based in offices across Aberdeen, Edinburgh and Glasgow it is the largest law firm in Scotland according to a recent survey by CA Magazine.

    3. A Ponzi Scheme is a fraudulent investment scheme which pays its investors’ returns from existing capital rather than from their own profits. Such schemes require continuous investment; when this stops, the scheme collapses. It is named after Charles Ponzi, who used the technique in the 1920s, however it was also infamously used recently by Bernard Madoff.

    4. Reform Scotland media enquiries to Andy Maciver on 07855 261 244 / [email protected]

    5. Pinsent Masons media enquiries to Fred Banning on 07912 930 124 / [email protected]



The Pension Guarantee