The Pension future is looking dire; if Charles Dickens was writing Bleak House today, it would be about pensions and in workhouse terms.
The State is projecting the retired population doubling over the next 30 to 40 years, with the working population hardy increasing, which makes its own contributory unfunded pension schemes unsustainable, with not enough in work and paying taxes to support the retired.
Yet it is tinkering round the edges and going in the wrong direction, refusing to consider changing to a funded system in which people clearly make their own self provision. Retirement is delayed and taxes increased with NI moving to a universal grey pension at poverty level, regardless of contributions, effectively a welfare tax.
At the same time the successful defined benefit schemes are being forced out of business by taxation, levies and regulations, which the State does not apply to itself in the State and Public Sector pension schemes.
The alternative Defined Contribution scheme, in which all the Commercial risk is borne by individual members, is not fit for purpose, and in its own DWP report shows that it does not even return members contributions, losing some 3% per year in real terms.
The latest proposals for a single tier State pension of £140 per week, would phase out the State second pension and SERPS rebate putting even more pressure on private schemes and increasing their contribution levels. The State contributory pension is not good value for money and with Employer NI contributions are almost at 24% of gross wages, effectively giving basic tax levels of 44%.
The State spends roughly half NI revenues on basic pension; at £53bn per year this should give £100 per week to all pensioners, the same as the £102 currently paid to the three quarters or less of actual contributors. The State says that the minimum income for a single person should be £132.60 per week and this is the basis of the welfare Pension credit, plus other benefits, mainly Council Tax, which add a further £20 pw.
The £140 PW therefore does not even bring pensions up to the welfare poverty level and other changes of reduced contributory years makes the basic pension a welfare one, with contributions a farce and meaningless.
Next year the State brings in the Nest automatic pension scheme with individual contributions of 4% plus 3% for employers and tax rebate (State) at 1%, with much less publicity than the Olympic Games. Effectively this supplements the inadequate State pension and cynically could be seen as another form of taxation.
It does not appear well founded; it is based on defined contributions which are uncertain and perform poorly; current Insurance providers dominate the scene, which does not inspire confidence on previous record and does not appear independent of the State. It is aimed at a 15% wage replacement, half of what should be possible.
Membership is aimed at 5 million, only a quarter of those in work without adequate self provision, but even at this level contribution amounts are large. At £1,000 per year (8% of £12,500 pa), this would give £5bn per year income, totalling £200bn over 40 years in real terms before growth, possibly twice after this.
Yet there is no clear investment or protection policy, possibly low risk probably gilts or bonds, which means back to the State, with the overall risk of descending into another State pension.
This would be another lost opportunity of a sound guaranteed pension scheme (as previously outlined), with funds being invested outside the risky current commercial areas in social infrastructure of affordable housing, schools , hospitals, care centres, energy and transport, all of which could give good and reliable returns.
Decisions on this and State pensions should be brought out into an open forum, the new peoples democracy and charter, being politically voiced but ignored, with policies being made behind closed doors by a selected few and only changed when subject to public opposition. Now would be a good time to start the change.
We have had many reversals recently on ill thought out and cost cutting measures, which even common sense would have rejected. We have also seen signs of the ugly side of Capitalism and not so free enterprise, with the revelation of media and Commercial influence on Government.
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