John’s Blog 34 – Pensions – NHS Consultation

I read the Department of Health consultation document on the NHS Pension Scheme this week. My first impression was that this was science fiction, my second that this was fiction but not scientific, more a mystery novel, the mystery being where did they get their facts from?

Information on Public Sector pensions is hard to come by; there are no published accounts, required by the State for all other schemes. One would therefore expect the consultation proposals for major increases in member’s contributions to be supported by good accounts.

The Case for increasing contributions states in the first sentence “expenditure on public service pensions over the last decade has increased by one third to £32bn”. The GAD 2009 report gave the 2008 pensions paid for the four main schemes at half this value at £16bn; the Hutton report projected forward at £25bn including Local Government scheme . So who is spending £32bn?.

It gets better, or worse, depending on your viewpoint, the next sentence states that we are all living longer than previous generations, true, but then justifies this with 60 year old living ten years longer. Proposals are to increase retirement age to 65, so where is the relevance?

Between 40 to 45% of adult life is then claimed to be spent in retirement, we should be so lucky! Assuming adult life starts at 16 then working life at 65 is 49 years (44 for 60), then we can expect some 40 years of retirement ( 36 years at 60). We shall enjoy life on our 105^th birthday!

Currently life expectancy at 65 is 20 years, so half of us will be alive at 85, few of us will live beyond 95, so this statement is rubbish! It is also stated that members will draw NHS pension for between 24 to 27 years.

We then go on to state pensions are costing more and these costs have generally fallen to the taxpayer, again untrue. The State bible on costs, the 2010 Blue book give PS contributions in 2008 at over £20.65bn, some £4bn greater than the pensions paid, with most of this surplus being in the NHS. The contribution breakdown indicates Employers at 8.9%, Employees at 6.5% and Social (SERPS) at 5.1%.

The new rates bring Employees to the same contributions as Employers, although this is quoted at 14%, which includes SERPs, effectively an employee contribution for loss of second State pension.

Retirement Pension expenditure is given for 2009 at £60.48bn which includes State pensions, given elsewhere as £45 to £50bn, again showing PS pensions within their means and no taxpayer burden.

The document then compares benefits with the new contributions on a pound to pound basis, which is as clear as ditchwater and meaningless, being based on incorrect data. After 40 years service with pay at £25,000 this shows a pension of £12,500 per year. GAD shows average NHS pay at £23,600 and average pension at £6,000.

The consultation document is not worth the paper it is written on and is an insult to the intelligence of NHS scheme members. If this is the standard in the Department of Health then it is no surprise that the NHS is in such chaos. The only real solution is the breakaway to a fully funded scheme free of the State.

All doctors, nurses and other workers should write or E-mail the DoH with their objections in the strongest terms, demanding an independent pension scheme and full current accounts, It would not hurt to do the same to your MP, the Minister and even the Prime Minister in the same vein. They cannot ignore 1.6 million members.

It is your pension savings they are mishandling and your pension future at risk; such savings are being criminally misused to pay existing pensions and subsidise other public sector workers. The NHS pension scheme is healthy and in surplus, but will not stay so for long in the present hands.

 Apologies for the necessary number detail but the next blog will try to make pensions simpler!

Savings   Annuities          Public Sector   NHS         Teachers   Police   Local Government    Hutton   State

John’s Blog 33 – Pensions – 2012 Changes.

The 2012 Olympics are receiving massive publicity with one year to go, but the other major event, the start up of compulsory pension contributions under Nest, receives no attention at all.

I doubt if the majority of people in work are even aware that from September 2012 there will be a deduction of 4% from their wage or salary and that their employer will be required to pay an extra 3%. In the present climate, neither can afford it with the resultant potential threat to employment. The Government is also proposing to implement Public Sector contribution increases in April, in spite of still negotiating these.

A report out this week states that the average working person will be worse off when they retire than their parents and will struggle in old age, less than a quarter are making any pension provision and the schemes of those that do are under increasing attack and diminishing in number.

What is needed is a universal pension scheme with a guaranteed income for all in work with affordable and worthwhile contributions. Of course, one may say, this exists with NI contributions designed to meet pension needs, but many “parents” who depended on the scheme struggle to exist on the poverty level pensions that this now provides. Future proposed changes to State pension provision will make this worse.

The State pension is now a universal welfare pension at workhouse level and for many years has given poor returns on the contributions made or separated out welfare from earned benefits and following the normal trend with the State, you are better off if you don’t work and don't pay!

Nest is supposed to supplement the inadequate basic pension and the 8% total contributions are expected to give a 15% wage replacement value; if it kept pace with inflation and population projections, it should return a minimum of 18 to 21% and with modest returns aim for 40%.

It is being set up as a defined contribution scheme where members bear all the investment risks and costs, the setting up costs are 4%, one year’s contributions and annual charges of 0.3% pa of Fund value, yet large funds have lower values than these. There appears to be no clear position on Trustees, although a committee of major Insurance Companies is being set up; the money is going into State coffers, which is also disquieting.

Member numbers aimed for are 6 million although there are some 20 million in work and not contributing to pensions at present and one can opt out although conditions are not clear on this. One gets the impression that this could be another rerun of NI, becoming another tax and slipping into an unfunded system, the State has a record of treating all income as taxation revenue and spending it.

Even the DWP, in a report state that defined contribution schemes lose money in real terms and fail to repay the cumulative contributions made, thus giving poor value for money.

It needs setting up in a sound way, free of the State, similar to the scheme suggested in earlier blogs, with sound management, investment targets and full accounting. A more sensible approach would be to forget the basic State pension altogether for those in work and replace it with an extension of SERPS rebate of NI. The basic State pension takes up just over half the NI income, which would give a rebate of 8 to 10%, matching the proposed Nest contributions. 

Total contributions of 16 to 18% in a well managed funded scheme should be able to deliver a 50% level of average wage in real terms, creating a self sufficient pension basis free of demographic problems of population increases. This would also give incentives to save with growing individual funds.

Positive steps need to be taken to secure a pension future fit for this century, not the patching up of decrepit and outdated schemes. The large investment funds produced could also be used to finance the present needs in social infrastructure similar to that achieved in the nineteenth century.

Pensions need to return to their original purpose of individual savings made to accumulate and grow to provide a known position in retirement with freedom of choice and security, not the current free for all, where what you get depends on the market state when you retire.

The only people who gain are the Financiers and the Government, who both live off the steady income that contributions supply and cream off the funds when the markets fluctuate. There must be and is a better way to reward hard work and the large pension savings than the present pension lottery.

This will only occur, when the population in work demand a fair return on their contributions to the State and other Pension schemes. The envy and anger at those who get a decent return should be directed at the State and  pension providers to ensure all rise up to that basic level rather than all reduce to poverty.

Savings   Annuities          Public Sector   NHS         Teachers   Police   Local Government    Hutton   State

John’s Blog No. 32 – Pensions – Current Events

This has been a terrible week with events that affect pensions and pensioners both directly and indirectly.

Like many I was appalled at the senseless violence, destruction and looting that occurred in our major cities for which there was no excuse. The attitude that “what is yours is mine” and take any steps to get it, endemic in some undeveloped countries, appears to have been imported into this country and organised through the Internet.

Since early ages, humans gathered together in Tribal Societies for protection and mutual gain and accepted responsibilities and duties in exchange. At that time it was black and white, the tribe against the external threat and anyone who broke the rules was cast out.

Now the situation is more complex and we have become bogged down in human rights and a multitude of excuses for not obeying Society Law and rules, whose need is essential if we are to continue to survive. If you break the Law , it is common sense, that you should lose the protection and be cast out until reparation is made.

Human rights are part of Society and criminals should lose those rights and all claim to the benefits of Society, although they should still be treated humanely. An inherent part of social gathering or tribes is the respect for other members, their lives, property, rights and well being, whether this be in a village, town or nation.

This involves accepting the responsibility and of ensuring children are brought up with this knowledge and attitude otherwise we shall all revert to the jungle, with survival of the fittest and most ruthless. Deprivation, poverty, social position are no excuse for ignoring the basic rules and failure to instill them.

We live in a culture of violence, greed, envy, blame and competition in the acquisition of worldly goods and this needs to be controlled to minimise the threat from within. At the same time we must ensure that Society gives hope and opportunity to all, particularly the young, which appears to have been lost in the obsession for wealth.

I did two years National Service, I do not regret it and found it a good experience and life training exercise. Taking someone from the home environment, giving them independence, a basic income , training, social mixing and a sense of responsibility is not wasted time. It does not have to be in the armed forces, it can be an apprenticeship, course of education, charitable and social work in this Country or or even third world.

We need to do something urgently both in punishment and reward before it is too late.

The other event which directly affected pensions, particularly those about to retire, was the upheaval on the Stock Market, which is becoming more unstable and volatile. There must be a better way to manage Commercial affairs than this speculative free for all circus, which appears to pay little attention to actual worth but more to rumour and hearsay and the attempt at the fast buck.

The two events are connected, the latter being theft from hard earned pension savings and from wages in speculative commodity activity raising retail prices, particularly oil and gas. The Country is in the doldrums under threat by mindless hooligans and global conglomerates driven by self interest and of questionable judgement. Lost are the true investors of the 19^th century who built Britain up.

The Government needs to take control and avoid the blame game, the present recession and current social ills will only be beaten, as in the past, by growth using the Country’s assets of labour and own materials without incurring foreign debt.

Funded pension schemes offer the potential Capital to fund such growth in infrastructure of affordable housing, transport, energy and social buildings; to take youth off the street in worthwhile work. Most of such expenditure offers modest stable returns, whilst benefitting all.

Many such projects are at an advanced stage or can quickly be realised, one such is the Severn barrage which with upper dams could supply 20% of our energy needs, current cost estimates at £35bn it uses  internal supplies of mainly concrete, steel and labour with few imports. Compared with the London Birmingham high speed rail link at the same price and large imports, there is no contest, such obsession with speed offers little benefit, double the speed gives half the traffic flow due to four times the stopping distance and spacing.

All this may sound insular with buy British, but perhaps we need to be, to reduce foreign debt and influence and regain our independence, to get the nation working and growing again

Savings   Annuities          Public Sector   NHS         Teachers   Police   Local Government    Hutton   State

John’s Blog 31 - Pensions – Mis-information and Public Sector Pensions

Mis-information was developed as an art during World War II and appears to have been re-found by the Government, or become more blatant.

It is certainly being used in the campaign against Public Sector Pensions, particularly NHS and Teachers, who are damned if they strike to get their voice heard and damned if they don’t.

I was extremely annoyed a week ago to read the gross distortion of facts, given with the announcement of the new pension rates. This was carried by most of the media in an almost similar form and appeared to be a press release by the Ministry, being as close to the truth as the hacking scandal.

A nurse earning £30,000 a year was stated to build up an” enviable pension fund of £500,000”, denied to the ordinary worker, who would be lucky to get anything. The State publishes no accounts for these schemes, mandatory for private schemes, therefore facts are hard to come by, but one can dig and search.

GAD reports of 2006 and 2008 give NHS average salary at £23,600 and average pension at £5,400, less than 25%  of salary; at a 4% annuity this would need a pension pot of £140,000 and at 6% only £90,000.

The 2008 Blue book shows total Public Sector contributions as:-

Employers - £7.853;    Employees - £6.687;   Imputed Social - £5.119;       Total - £19.659 billion

Giving average Employer contributions at 7.3%, Employee at 6.5% and Social (SERPS) at 5.1%.

A nurse on £23,600 would pay contributions of £1,534, give up her right to State second pension for £1,200 and receive Employer contributions of £1,723 over 40 years for a pension little better than the State basic pension and which even with this fails to reach the 50% promised. Teachers, Police and Fire are similar

Any other worker making total contributions of £4,460 per year into an investment fund, from latest Moneyfact figures for savings of £1,000 per year over 10 years, (some 7% growth), would over 40 years build up the £500,000  fund stated. Buying an annuity at 4% would give them a pension income of £20,000 and at 6% some £30.000 per year, inflation proofed in real terms. Four times the actual. Who should be so lucky !

GAD 2008 shows NHS contributions of Employers at £5.3bn, which wrongly includes SERPS refund, indicating total contributions of £8.1bn and shows Pensions paid at £4.5bn, giving a surplus of £3.6bn taken by the Treasury to subsidise the Civil Service, (paying until recently 1.5%), Armed Forces nil and MP’s, Judges and others not known , but all presumable nil contributions.

The State runs Public Sector (and State) on an unfunded “pay as you go” basis in which the contributions are spent the same month to pay someone else’s pension, whether they contribute or not!

Any Company or individual doing this would be criminally prosecuted for mis-use of funds, even fraud, heavily fined and jailed and struck off or barred. This is clearly illegal and the law should be obeyed even by the State.

I do not deny concessions to the Armed Forces, but they and subsidised others should be outside the overall scheme, as internal Department or State costs. The NHS, Teachers, Police and Fire are hard working and pay good contributions and receive a poor pension return which would not be accepted in a private scheme. It is now proposed to increase their contribution by up to 3%, giving even less return! It is they who are cheated by the State.

The NHS could readily transfer to a funded scheme away from the State, even if they paid existing pensions, the annual surplus of £3.6bn would rapidly build up to a fund of some £50bn in ten years and £250 to £300bn over forty years, with potential investment income of initially £3bn up to £18bn per year..

Members would be three to four times better off and free of future uncertainties of increased longevity in old age. Funds could be invested in hospitals (buy back PFI), Hospice and care homes and give a good income return. If the State took over responsibility for the existing pensioners, then all four schemes could cope with the transition and even meet future new pensioner demands.

I am retired with no interest other than hard working relatives in the Police, NHS and Teaching.

The State needs to take a positive approach on PS pensions not denigrate the hard working and hard done by members , separate out the subsidised members and repay the many years of mis-use of funds. Pigs might fly!

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