I must apologise for the interruption of the normal blog programme.
Public Sector pensions are in the news again; the Unions are nearing the last resort of strike action; the Coalition is supposedly negotiating but Treasury Ministers are giving ultimatums and with the CBI, entering the Public arena to gain support.
PS pensions are represented as overgenerous at the taxpayers expense whilst they themselves are subjected to reducing pension benefits. This is not exactly correct; some are and subsidised by the taxpayer, but the majority are not.
Teachers, NHS, Police, Firemen and Local Government employees all pay large contributions which equal Private Company defined benefit scheme levels and with similar employer contributions and SERPS rebate should earn benefits higher than they receive.
The problems are the unfunded nature of the pension scheme and the forward population projections, resulting in the generation dependency of the retired on those in work. In the PS there are two retired for every three in work, this is projected to change to one to one.
This means that every £ contributed pays someone else’s pension of a £ and you hope that there are enough people working when you retire to pay your pension. This is obviously a nonsense! and can only become sensible by a change to a funded system, where you save for your own pension i.e. self sufficiency.
However everyone else should not be complacent, this is only the start of the problem for State pensions, which run on a similar basis. Currently with three in work to each retired, this is projected to change to two to one, with those in work paying NI contributions for someone else’s pension.
Even with the new proposed rates, pensions are at the poverty level, specified as the minimum a person needs to live on, to meet the increased demand will need large rises in NI or taxes. Moreover to get a reasonable income each will have to make extra contributions as in the Public Sector.
Instead of reducing everyone’s pension, which is occurring in private schemes and proposed for PS, the need is to change fundamentally the pension system to give everyone a secure and comfortable retirement. This is the aim of the funded contributory defined benefit pension scheme outlined in previous blogs.
No one appears to have questioned the validity of the forward population projections and increased life expectancy, which are the basis of all the cost savings and the need to work longer, save more and take less.
Over the next twenty five years the over 65 population is projected to rise by 70%, with the over 90’s tenfold, in contrast the working 25 to 64 will rise by 4% and the under 25’s fall by 5%. The rise in the over 65’s is five times that of the past 30 years, which if this lower level is maintained, would only result in an increase of 12% over the next 25 years, a more manageable situation.
Why should this rise in population occur, there have been no major medical advances or anti- ageing drugs, the everlasting life search over the ages. We are all getting older and although fighting it do not expect to win, just hope to delay it; although increasing steadily there is little reason to believe it will change more dramatically than over the past thirty years.
Do not ignore the PS crisis or back the State solution, it is only the tip of the iceberg, which we could all founder on. I have no political or vested interest in this matter only the basic commonsense to recognise the problem and maths background to work them out.
We need to get back to a realistic approach and take the steps necessary to break age dependency, establish self sufficiency in pensions and give value for money and security in old age.
Savings Annuities Public Sector NHS Teachers Police Local Government Hutton State
