The difficulties of funding a subsistence-level pension out of flat rate contributions became more acute when the Conservatives came into power in October 1951. In 1952, the Cabinet considered ways of solving the problem, including raising the age of retirement and extending supplementary occupational pensions. A limited financial review of the National Insurance Fund in 1953 forecasted large deficits within five years. The Cabinet agreed to set up an enquiry committee to find a means of avoiding this. Meanwhile, political pressure forced the Cabinet to accede to a five shilling increase in pension payments to 37.5 shillings, funded by a rise in the national insurance contribution.
Just before the Phillips Committee reported, provision for a 40 shilling pension was incorporated into the National Insurance Act of 1955. The Treasury agreed to continue its contribution in exchange for increased national insurance contributions. The Phillips Report supported this, and argued for a rise in the age of retirement and a withdrawal from the commitment to supporting subsistence-level pensions.
In 1957, the Conservatives undertook a major review of national insurance in response to proposals by Labour's Richard Crossman for earnings-related state pensions, which would be linked to increases in the cost of living after retirement. The pensions question caused controversy in the government. The Treasury argued for a state-administered graduated system of contributions and benefits with the aim of reducing the burden on the Exchequer, and John Boyd-Carpenter, the Minister of Pensions, argued for a private scheme.
In 1958, debate focused on the question of whether pensions should be provided primarily by the state or the private sector through outsourcing. The government undertook extensive consultation with private sector employers. Eventually, Cabinet accepted the Treasury plan for a state-run, graduated scheme, by which the final pension would depend on the amount of wage-related contributions. A contracting-out clause was, however, included in the compromise plan, which was published in a White Paper and incorporated into the National Insurance Act of 1959. Before the new pension scheme could be introduced there was increasing political pressure for an increase in payments. Cabinet accepted an increase of seven and a half shillings a week to be funded in a 'one-off' arrangement from the Exchequer.
In practice, the new scheme proved difficult to administer. Many Conservatives believed that savings could be achieved by differential payments, with those over the age of 70 receiving the bulk of increases. Cabinet had to agree to another flat rate increase in pension payments in 1962. In 1963, the Minister of Pensions and National Insurance called for a review of the 1959 Act.