I thought this week that that the clock had been set back two centuries in the opposition to change seen at the start of the industrial revolution; however the tables have been turned. It is not the peasant farmers and landed gentry, but the Commercial and Political fraternity, once the instigators, now opposing change.
Banks are refusing change, maintaining it is not necessary and the Government is delaying action, yet another major Bank reports large rogue trader losses, the cause of present recession problems; Countries and Companies are held to ransom by commercial pressures of deemed worth and speculation.
We are embroiled in a Computer unreality world, where hard work and real values are ignored; speculation and manipulation dominate in the race for the fast buck regardless of the consequences.
Nowhere are the results more obvious than in Pensions, which are long term, but are being dealt with short term; we are papering over the cracks where drastic action is needed. Commercial and Political interests combined with State taxation and regulation dominate, resulting in excessive charges, Fund erosion and poor returns with pensions being over-contributed and Funds undervalued and in cases downright fraud with misuse of funds.
There are factors on funded pension schemes which appear to be unrecognised or ignored, certainly not understood:-
· Pension contributions give a steady source of investment funds over 40 years and then do not need to be repaid only serviced at a modest rate of 4%.
· Investment income can overtake and amplify contributions in a well managed fund; can be more important than Capital growth and in a retired Fund meet pension payments leaving Funds untouched.
· Even at current population projections, a 4% investment income will sustain an inflation proofed 6% payment/ annuity.
These make pension schemes attractive Commercial propositions, not the burden as seen by many and result in Commercial interest after speculative gain. They need to be taken out of this environment and also the Political and State arena and put into Mutual Pension Societies or similar bodies, possibly work related, and the large funds invested in National and Social infrastructure to promote economic growth. Contributions also need to be protected as personal savings, which they are.
A recent DWP document “Pensions fit for the 21st Century” was anything but, proposing a single tier pension at poverty level but still below benefit pension, abolishing SERPS rebate and State second pension.
If one accepts the questionable population projections it is obvious that the State unfunded schemes cannot possibly survive; the retired population will double over the next 30 years; the basic State pension, now at 50% NI income, will require an increase in present total contributions from 24% to 36% for what is already a fourth rate return.
The Government is conducting a campaign of misinformation, distorted facts and envy against Public Sector pensions, but this is the thin end of the wedge, setting the stage for State pension changes. The aim should be to take all State pensions up to this level of defined benefit at acceptable living standards. This can only be achieved with a universal funded defined benefit pension scheme as outlined in previous blogs.
The population in work deseves a scheme which gives value for money, treats contributions as personal savings and gives a guaranteed benefit outcome associated with contributions paid. They are not getting this in State, Public Sector, and many Private schemes. The new Nest scheme in an accepted loss making defined contribution form which should give 2 to 3 times the projected return of 15%; £3,000 pension on a £20,000 wage!
Transition to a funded scheme is economically possible, financially beneficial to both members and State and the only option forward to a secure and guaranteed pension future in retirement.
The TUC met this week and all unions present put forward their intention to ballot for strike action over Public Sector pensions, although I deplore such action, I can only accept and sympathise with the reasons for it. The Coalition has been crass and high handed in their attitude to the problem, bulldozing changes through whilst supposedly talking.
They have given no data or information to support their arguments or reasons; after lengthy talks and agreement to major changes in 2008, they are now entering into annual “consultations into changes and contribution increases with documents that are factually incorrect.
Whilst talking of Open Government and people power, they are busy battening down the hatches to repel any other viewpoint or ideas, this is not restricted to PS pensions but all areas of Government policy and cost savings under the spending review, which are being pushed through regardless of their social impact or common sense need.
Will we need shortly to fight for democracy?
Savings Annuities Public Sector NHS Teachers Police Local Government Hutton State
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