There was an item on the news that the Government is issuing a new language guide for pensions in an attempt to explain pension jargon in order to create better understanding. It would be more helpful if they were to simplify pensions and cut out the jargon to make them easier to understand.
The complexity arises because of the language, the numerous rules and regulations and the apparent intention of all parties to confuse the individual. Most people now understand savings, mortgages, Bank statements, car and home insurance and household budgets; increasing numbers shop for the best deal on the web, etc.
Previous blogs have tried to do this, introducing simple factors and the means to determine aims, objectives and performance. Pensions are regular monthly savings over a long term of forty years; the individual needs to know that they give reasonable value, guarantee a good benefit return when they retire, with a firm date for that retirement.
They do not need to know the detail only regular confirmation that all is well; they do not get involved in the statistics of car insurance, no of accidents and costs, or house insurance on houses destroyed etc. They do not enquire when putting savings into a Building Society which house is bought and don’t worry about costs and charges, they are all included.
As long as the end result is the best, they are quite happy to leave it to the experts. Once upon a time this was the position with Pensions, one worked, paid one’s National Insurance and at the agreed time retired to a reasonable income. However as this degraded, the necessity grew for private schemes, previously for Company Management, they extended to other workers as Defined Benefit schemes with a guaranteed outcome.
These in turn degraded, a combination of over generous benefits; rapid final salary rises; changing markets conditions and increasing State pressures on regulations, taxation ,and pension levies, forced up contributions to unaffordable levels. The next downward step was the Defined Contribution scheme, where members take all the risks; providers make the profits with high costs and charges and returns that don’t even keep up with inflation.
It is almost as if the State has a death wish on Pensions reducing the retired population to poverty and State dependency. As with the Banks, they make no attempt to control the Industry; there are no guidelines on Fund performance or charges, where Tax relief is tapped off at source.
Of course their own track record leaves much to be desired, the State and Public Sector schemes are in a mess, due to the change to an unfunded scheme which is unaffordable and unsustainable. Had contributions been allowed to accumulate and grow into Funds, they would have been extremely successful providing much of the investment capital required by the State and the Country.
It is not too late to change things, with the vision and effort shown by our forbears in the Industrial revolution, a Pension revolution could occur. Transition to funded schemes are possible, with the State pension by the Universal scheme previously outlined financed by the 8% contributions proposed in Nest, (but not in that form) and matched by an equal NI rebate to replace the basic State Pension. Such a change could meet a major part of the Budget review targets without the agony, with savings of £15bn in real terms by 2030 rising to £20bn by 2040 and increasing thereafter, besides giving real pension benefits.
The unsubsidised parts of the Public Sector pensions could readily transfer; the strongest the NHS have good surpluses and could transfer tomorrow and even take over existing liabilities and meet the worst population projection increases, without the proposed changes; improving the scheme and saving taxpayer future liabilities
Instead of considering and taking such positive steps, the Government has adopted a policy of bulldozing short term changes through and mis-information, exaggerating costs to alienate the general public. The latest NHS “consultation” document gives pension costs over the last decade as increasing to £32bn, whereas the last GAD 2008 report showed major schemes at £16bn. We are all going to live to 100, but the latest population figures do not support this and the validity of increased life expectancy is questionable and not justified.
The State should release the facts, give full accounting for State and Public Sector schemes. Information on the web is more difficult to find; files were archived at the change of Government and disappeared with searches giving “no results found”. Statistics have not been updated since 2004 or earlier for State pension liability or breakdown of payments, pension expenditure is consolidated under general Benefit costs, although PS contributions are still given with unexplained rises. The whole thing is a mess and does not promote confidence
It is time for a change and the sooner the better! Times are hard but do not justify such inefficiency and ad hoc decisions. Let common sense prevail, based on the facts and let us have some true vision for the future.
Savings Annuities Public Sector NHS Teachers Police Local Government Hutton State
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