Saturday 29 January 2011

John’s Blog 6. Pensions - Public Sector Pensions - 3

The proposals for the Public Sector Pension reform basically boil down to:-
            Reducing Benefits          Increasing Contributions                 Delaying Retirement
With the basic aim of reducing actual or the perceived future costs of the scheme
The initial report follows recent previous ones and contains similar fact distortions, with particular regard to the cost to the Tax-payer, and dire predictions of the effects of longevity.
The contribution levels are divided into Member’s and the State, represented as Tax-payer costs.
 In fact these divide into three areas, according to the State accounts (Blue Book) as:-
Employers - £7.9bn; Employees - £6.7bn; Imputed Social - £5.1bn (SERPS rebate ?)   Total - £19.7bn
 equal to contributions of   7.3%,   6.5%   and 5%,   which are at a similar level to private Sector schemes.
These contributions cannot possibly be attributed to or described as tax-payer costs.
Great emphasis is placed on making the system fairer, but do not tackle the subsidised areas of the Scheme.
These are mainly the Civil Service at a low 1.5%, now 3.5% and the armed forces who pay nothing.
Although no one would deny the serving forces this exception they should both be treated outside the scheme and their payments of £6.1bn funded by the Departments concerned, and not other’s contributions.
Payments for Teachers and NHS are £9.9bn; with police and Fire at £1.2bn, well covered by contributions!
The Pension Scheme is represented as “Gold Plated”, although this may be true for the upper management elite few, it does not apply to the majority, many of whom are close to the minimum wage.
The average wage for the major NHS is £20,900 and teachers £32,000 p.a with average pensions of £5,200  and £8,300, some 25% of wage. These are in no way generous or excessive even with the State pension
Total contributions of 18.3% of wages would give a successful Funded Scheme, with much higher pension levels and are the obvious way forward.
The draconian measures being proposed do not appear to be justified, these result more from the unfunded nature of the scheme and the bias to non-contributors and high earners. The money should be made to work harder and give better value.
The next blogs will consider the basic pension considerations and the effects of increased longevity.

Saturday 22 January 2011

John’s Blog 5 Pensions - Public Sector Pensions - 2

This blog will try to explain Public Sector Pensions as simply as possible.
The Pension Scheme is one of the few remaining Defined Benefit Schemes.
Shared with rapidly declining Company Schemes; it is the ideal pension solution and should be universal.
It ensures a guaranteed pension income linked to average final salary offering security in retirement.
Normal Pension schemes are funded schemes in which contributions are accumulated in personal accounts and invested and grow to build a pension fund to finance retirement. Such individual funds offer security and being centrally run, build up large fund reserves to act as a buffer against market and other changes.
 The State in its wisdom, because it found such large sums attractive, or for cost cutting reasons, decided on a short cut from saving to pension, using income as it came in to pay immediate pensions. It ignored the simple arithmetic that\;-
            Pension value equals contributions times the working to retired population ratio.
In the Public Sector this ratio has fallen to 1.4, requiring a 36% contribution to give a pension of 50% of salary.
Overall contributions are 17% which only allows a 24% pension and in fact the average pensions paid are around this level on the last figures issued.
The balance is made up with the State Basic Pension, which follows the same unfunded basis.
Increasing Life Expectancy with people living longer both in retirement and swelling the numbers entering retirement, affects the number paying contributions to support the increasing numbers in retirement, leading to the current crisis. This situation is not sustainable or self-sufficient.
The real problem is that contributions are spent before they can work and grow over the forty year work period available. As a result, the contributions needed for a given pension are three to four times that for a fully funded scheme.
The obvious solution is to change to a funded scheme; dismissed by the current enquiry as not possible economically.
The fact that the alternative is less attractive or sensible appears to have been ignored, or that in America all Public Sector and Local Government schemes are funded and highly successful.
In addition such accumulated funds could be available for vital investment in the UK in Schools, Hospitals, Housing, Energy and Transport.
I feel the result is a quick fix solution which will be unfair and only short term until the problems become completely insoluble.
The subject of the next blog is the proposals and the way they are misrepresented to gain public support.


Sunday 16 January 2011

John’s Blog 4 – Pensions – Something Completely Different

The blog intended was changed due to my experience last Thursday.

                        The Big Event Day
                        Grand-daughter, Graduation, Doctorate
                        Journey from Wales to Sheffield
                        Overnight stay, up early, seated by nine
                        Grand Display, Pomp and Ceremony
                        Colorful and dignified Spectacle
                         Muted expectation, hard work rewarded
                        As each was announced and presented
                        British tradition; conversely Global
                        Large multi-cultural gathering
                        Vice – Chancellor speaks, bemoaning fund cuts
                        Raising fundamental issues
                        Do we need Architects and Planners
                        Social and Environmental workers
                        Geographic and Social Sciences
                        Research on Global resources; Climate change
                        The Exchequer says no; the World yes
                        Judged by their graduate representation
                        As the staff and graduate procession left
                        The thought arose, should those bobbing mortar boards
                        Be inscribed “£30K Life Mortgage”

                        Then personal tragedy; wife ill, collapses
                        Medics called; Rapid Response
                        Efficient Effective Expertise
                        Monitor pads galore
                        Connected to Hi-tech machine
                        ECG, blood pressure, you name it
                        Considerate questions and tests, then paperwork
                        Back up called, first ride in an ambulance; no sirens
                        Latest state of the art vehicle, except suspension
                        Proud careful driver on bumpy roads
                        Like Ancient cart tracks
                        A & E busy; queue for bay; controlled chaos
                        Rapid transfer to cubicle, more pads, new machine
                        Friendly care, questions and tests
                        Wait for progress and results
                        Constant attention and information
                        Listen through surrounding curtain
                        Patient bedlam
                        Pain, moans, demands, complaints
                        Quiet, caring and re-assuring responses
                        By Nurses, Doctors and Staff
                        NHS at its best
                        Wife stabilized, tests clear, free to leave
                        Staff too busy to thank

Returned to my grand-daughters home to recover, the news was full of Bankers pay and bonus excesses, which are ten to a hundred times the average NHS wage.
Perhaps they should repeat that day’s experience, not with red carpet and special attention but as an unknown “relative” of a patient taken to A & E
Sit back, listen and learn how the other half work and live and make their demands less obscene.
The day as a whole made me acutely aware of all that we take for granted in personal life, health care and teaching. This increased the determination in my blog to raise pension awareness to oppose unnecessary changes and cost cutting, which will blight the pension future of those who do so much for so little.

Friday 7 January 2011

John’s Blog 3 Pensions – Increased Life Expectancy

We all want to live longer, we also want our partners, parents and grandparents to live longer.
Medical advances and better social care are making this possible giving greater life expectancy.
However the System in the form of pensions, elderly care, and just plain quality of life have not kept up.
Important decisions are being made, based on increased Life Expectancy which affect the retirement future.
Yet their effects in retirement do not appear to be fully understood, with many misconceptions.
Life expectancy is the time in which the population at a given age is halved.
Currently at age 65 for males this is 17.5 years and 20 years for females.
It tends to be misunderstood being taken as the time you can expect to live, whereas you have an even chance of living that long; for males your odds are 10 to 1 of living to 70 and 5 to 1 of living to 75.
The actual technical term is mortality rate, derived from birth, death and migration data, which is reducing.
Reduced mortality occurs from birth to death but its major effect occurs before retirement. The problem is therefore from the numbers entering retirement rather than increased longevity in retirement.
Mortality rates increase rapidly with age; the rate at 89 is ten times that at 65, which is ten times that at 39.
Projections of the population in retirement based on Life tables suggest these could increase over the next twenty five years by 50%, the majority of this, some 90%, from new entries.
However actual population figures show mortality rates some four times higher than life tables, which suggest future rates of increase much lower than this, due to historical reasons. Over the past 28 years the retired population has increased by 17%. Why the threefold increase?
Recent claims of the population number reaching age 100 by 2060 would require that no one currently between 50 and 65 would die over the next 50 years. A miraculous advance in the control of ageing.
There is confusion over increases in population overall and the effects in retirement.
If the population doubles over the next 50 years, the main rise will be in the under 65’s, creating problems in employment. If in work and saving for a pension then the effects in retirement are small.
The reaction has been one of panic -   delay retirement; cut benefit; increase contributions and cut costs.
It pays no regard to the Social effects or the individual’s quality of life or needs in retirement.
The earlier you can retire the better, at 65 you have, at best, some ten years of active life before body parts start to wear out, from 75 on life slows down, you doze off in the afternoon and need to make an effort to do anything. The mind is willing but the body weak.
Forcing people to delay retirement and work is similar to forced child labour, depriving them and eroding precious life time, (from 65 to 70 some 10% will die). It should be a personal choice from age 55 onwards.
The real solution to the Pension crisis and longevity is an increase in pension self-sufficiency for those entering retirement, with a defined benefit and the flexibility to save more to retire early or continue work.
This suggests drastic changes in Pension provision by the State, Public and Private Sectors to make them more attractive, give value for money, better benefits and security in retirement.  
Although a problem, increased life expectancy in retirement will have a much lower impact than the doom and gloom would suggest or the drastic reaction would merit. More on this in later blogs.

Saturday 1 January 2011

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!