2 Pensions – The State Pension

I believe the State Pension is a farce

It is treated as a contributory scheme during work and then as a benefit when you retire

Deductions are made from your wages in the form of National Insurance contributions, which both you and your Employer pay once the threshold wage is reached.

You believe this entitles you to an adequate pension when you reach retirement age, which you have earned by hard work, in a similar manner to private schemes.

Once upon a time, before the big bad Chancellor got to work on it, this was true, with a second pension as your contributions grew and then your final pension increasing with inflation to meet living costs.

It is run as an unfunded scheme so that individual funds do not accumulate, but with a three workers to one pensioner ratio it manages, with difficulty, to struggle on. Currently all NI income is spent on pensioners.

However increasingly, to save costs, the pension has not kept up with living costs and dropped below the official poverty level. It is referred to officially as benefit and lumped in with all the other benefit schemes

The minimum amount the State says a single person needs to live on is £133 per week (£202 for couples).

If your income is less than this then you are entitled to Pension Credit.

If you therefore have savings of less than £16,000 you can claim Pension Credit and other benefits.

At today’s rates, this low level of savings will earn you less than £2 per week.

If your savings are below £6,000 your income is made up to this minimum value, in addition you can claim Rent and Council Tax benefit, Winter Fuel, free prescriptions, Optical, Dental  and other benefits.

The hard earned basic State pension is now £97.50 per week and you are therefore forced to claim benefits providing you can qualify by the intrusive means testing.

In fact if you qualify for benefit you are better off than if you have earned the basic pension.

In my opinion the whole system is a nonsense.

A clear distinction and separation needs to be made between earned and welfare pensions.

In fact the State spends almost all of the NI income on payments to pensioners in pensions and benefits.

At £93 billion pounds per year over some 9.9 million pensioners, this amounts to £181 each per week

This is almost twice the State Pension, which shows how much it has lost it’s way.

It is past it’s sell by date and should be replaced by a new Funded Universal Defined Pension Scheme.

Managed efficiently it could combine with and replace State, Public Sector, Private and other schemes.

Currently NI contributions amount to 8.6% for someone on the National average wage of £26,000 pa, with Employers contributions at 10%.

This equals the best private pension contributions but only yields a pension of 20% of NAW

The basis is there for a sound and efficient Funded State pension scheme with a little vision.

This will be the subject of future blogs.  

The next blog will deal with increased Life expectancy, the other crisis factor!