XCC(81)86
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The U.K. Government Actuary's Department (GAD) has given preliminary advice on the actuarial aspects, based on the general assumption that such a scheme would be likely to appeal more to older people. For sickness claims, in the absence of any available information on incidence, British experience was used and assumed that the proportion of insured employees claiming sickness benefit would at any one time rise from about 14% at the youngest ages to 2% at the oldest ages for men, and from about 1% to 2% for women. Briefly, actuarial advice is that the benefits proposed can be supported with a contribution of 2% from both employer and employee. However, because of the voluntary nature of the proposed scheme, it would be necessary to set aside the employee's contribution effectively to form a provident fund to meet withdrawals and return of contributions (plus interest) to participants on retirement. Benefits would thus have to be provided for by employers' contributions.
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The one advantage of the Green Paper Scheme is that it leaves the choice with the employee, but the disadvantages are:
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(a)
(b)
(c)
A voluntary scheme would add considerably to the administrative complexities of a contributory social insurance scheme.
The voluntary element would make it difficult to estimate with any accuracy income from contributions and hence to set benefits at the right level from the outset. GAD's conclusion is that the scheme would tend to attract the older less healthy members of the wokforce for whom the chance of claiming benefits is greater than for younger people. If this were so, the scheme would not be successful in attracting support from many young employees who ought to be covered for benefit and for whom the scheme was also designed.
Because of the uncertainty mentioned at (b), contributions would probably need to be set at a higher level than in a fully compulsory scheme to ensure a reasonable spread of benefits.
(d) Employers who have not joined the contributory scheme might
discriminate against persons who have already joined the scheme for fear of entailing additional expenditure.
Informed opinion generally, including GAD, feel that to be successful, any contributory scheme must be made compulsory. On the other hand, a compulsory scheme might undermine the well-established PA scheme, under which the poorest benefit on a non-contributory basis, and might lead to public accusation that the Government was seeking to reduce public expenditure by transferring a proportion of clients to a compulsory contributory scheme.
CONFIDENTIAL