John’s Blog 44 – Pensions – Increased Ageing Population.

Not a day passes without some reference to the ageing population and the problems created, it is used as an excuse for austerity measures on care provision, longer working, increased contributions and cutting back services generally. It is accepted widely with large increases in over 65’s and even more in 90’s and 100’s.

Yet no one questions the statistics, why is this happening?; where are the instant miracle drugs to give immortality within 25 years? Rapid advances are occurring in gene therapy and stem cell research, but trials will take that long before being available and even then will not stop the high mortality rates from 65 on.

There has been little reported study on the over 65 population and apparently no cost calculations, otherwise the problem would be tackled properly instead of the short term penny pinching policy being followed, which can only cause untold misery with no final gain or solution.

If you accept the projections and do the sums, then you would find that our present State, Public Sector and many private schemes, together with elderly care provision cannot survive without drastic and far reaching changes. We simply cannot afford the taxation levels required either individually or State-wise.

The UK population has been increasing steadily at a rate of 0.5% per year, this is projected to continue in the under 65’s but increase fivefold in those over 65. Life tables show that in females 90% will survive to 65, with males catching up, as close to immortality as we are likely to get with modern hazards. Births exceed deaths but will take 80 to 100 years to replace the population and the major mortality occurs in the over 85’s.

The problems therefore arise from the greater accumulation of population reaching 65 and retiring and not the numbers surviving thereafter, their increased life expectancy can be readily catered for in annuity and pension scheme payment calculations.

The real long term solution is self-provision, we each need to carry our own adequate pension pot into retirement, which the State needs to protect as personal savings and give every help to allow us to save it.

The way forward is to break the dependency on those in work for both pensions and benefits, which can only be achieved by self sufficiency. In pensions this requires individual savings at a modest level over the main 40 year work period from 25 to 65 combined with transfer of part of the National Insurance taxation to individual pension funds.

A possible scheme has been outlined in previous blogs, which uses the automatic pension scheme which all in work will have to pay in a year’s time as the basis for a Universal Pension Scheme. At an affordable 4% contribution it will be doubled by employer and tax relief and then doubled again by a NI rebate to give a good contribution level of 16%.

This will give a minimum pension of £140 per week to all in work, with the aim of doubling this with the personal contributions, to a comfortable pension of £14,500 per year for an average wage of £20,000 p.a., even the part time worker on £10,000p.a. should equal this wage in pension income  replacement.

Benefits are more difficult of course and require clear separation of students and the disabled from those capable of work, which require greater faith in the medical profession. We need to re-create a job culture by ensuring work is available to all, with possibly a return to the work house-mentality, which of course would be greeted by outrage from the idealists.

The present money saving approach of redundancy is counter productive as is the open to all immigration policy, all should contribute to Society or suffer the consequences with more emphasis on social rights rather than human rights.

There is enough that needs doing in this country to keep all busy and in overtime, it is a matter of good planning and priorities plus a return of internal economics, our lives are dominated by Commercial pressures and interests, which needs to change. Pension change offers the new source of investment capital to do this.

Creating worthwhile work is essential, whether it be in construction, transport, education or medical, social and community care, even a return to some form of community National Service after say six months on the dole could offer a solution and incentive to find work as an alternative to idleness.

We need to take firm control of our future and return to reality, nothing comes to those who sit and wait except boredom and frustration. I’m sounding off again!

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John’s Blog 43 – Pensions – Energy Costs

This diversion is related in so far as pensioners are a large part of those in fuel poverty, which is currently receiving attention, together with the high rise in prices. Retail prices over the past few years have risen many times the wholesale prices, together with the profits of the monopoly suppliers.

The Government, in order to increase competition allowed anyone to sell energy and set up a regulator, without any power, to control the market. The result has been a license to print money for suppliers, who still retain a monopoly; a proliferation of confusing tariffs and increased speculation in energy.

In the bad old days, we had two prices standard and off peak, our meters were read every month or the money collected, prices hardly varied and the regional suppliers made money. Now due to major advances, we have to switch suppliers every year to get the best deal, can find a cheaper tariff if we ask, have our meters read twice a year if we are lucky, with price rises at the same time.

If you are poor, then they insist on a prepayment meter at twice the price tariff, with no choice of supplier and a take it or freeze policy. If you are on direct debit, the price is cheaper, but you have to watch the annual reviews designed to keep a permanent credit balance, which is reduced when queried.

Of course there is the large increasing global demand, but the reserves are being pumped faster and China the biggest user commission a new coal fired station every week using home dug coal. We still have large reserves of coal, remaining underground due to green policies and we are exporting our oil and gas reserves, which we should be conserving for home use.

At last the question is being asked “can we afford to go green” alone and the answer is no, until we get world action, our efforts are pitiful, we probably reduce carbon emission equal to a minute of the US and China use. The energy cost of going green is put at £50 per household per year and the sources are intermittent and incapable of meeting out needs.

The latest actual Large Wind Turbine performance has been reported at some half that expected at 20% utilisation or less, whenever I pass the North Wales offshore installation they appear stationary, Solar is worse at 8%. This means they effectively run for 1.5 days a week, all right if you only cook, heat and light at weekends. All are expensive to build and with a large import cost.

Expenditure is being increased on tidal (undersea turbines) and wave energy (bobbing corks), but our largest tidal asset the Severn Barrage has been shelved due to cost and environmental considerations! The last detailed study showed this at £15-20bn to meet 20 to 30% of our energy needs, the latest cost put this at £37bn, the same as the London to Birmingham high speed rail link. I know which I would prefer.

The Barrage cost is mainly internal on labour and concrete, but we will probably have to import the turbines, the rail link, under EU rules will be spent in Germany. The Barrage was first proposed 70 years ago, Brunel would have had it running for the past 60 years; the St Malo barrage in France has been running for 50 years without major ecological effects and great advantage, running mainly on ebb tides.

Guaranteed twice a day, the intermittent effect can be smoothed out and improved by multiple barrages upstream and pumped storage at off peak, which would improve flood defences. The main barrage could therefore have little tidal effect other than smooth out surges. The gains are enormous with stable and consistent supply and energy costs for the next 50 years or more.

Short term energy costs could be better controlled and related consistently to actual costs, tariffs could be simplified back to two rates, prepayment meter could use debit cards or tokens issued as part of benefit payments to reduce commission costs. Energy Companies could start serving and not fleecing customers.

Combined with a realistic and consistent energy policy, they could be fit and affordable to all.

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John’s Blog 42 – Pensions – New Era Aftermath

Having completed the Proposals for the new Universal Funded Defined Benefit Scheme, the problem arises of how to get it read, understood, noticed and to create demand and I am looking at various options from own web site to petitions on the State one.

I have sent report parts to various Pension Reviews, Committees, Hutton, Trade Unions etc.etc., with little response and the impression that it is “shred, unread” , not understood,  just ignored or rejected out of hand.

One also has the impression that the level of mathematics at DWP is lower than the reportedly worst schools. An announcement this week on female retirement saying that compulsory retirement at 65 would be delayed for six months stated that this would affect 245,000 women at a cost of £1bn.

The arithmetic say a third of this,; full basic pension at £5,300 per year gives a six month cost of £650,000;  2008 population shows female numbers at age 64 as 330,000; half of these retire over 6 months with three quarters or less eligible for State pension, then numbers are 123,000 with costs of £325,00.

There appears to be a State policy of misrepresentation and indoctrination, facts are distorted and numbers exaggerated; I have noticed the increased use of the phrase we are all living a lot longer as an accepted fact. The population figures do not support this and question arise on the validity of forward projections.

The over 65’s are projected to double over the next thirty years at five times the rate of the past thirty, the over 90’s will increase tenfold, yet the latest mortality rates show an increase in the proportion of over 85’s. Historical and population figures show much slower changes, giving life expectancy at half current figures.

We are getting hysterical over this, but if you accept the projections, as the Government does, you should be taking the actions outlined in my blogs and proposals. Self sufficiency in pension provision reduces the risk, effects and costs dramatically.

The amount saved by delaying retirement by a year to 66 is small compared with the social cost, whose implications have not been well considered, nor has the quality of retirement life; also at present high unemployment particularly with youth, working longer occupies a badly needed job space.

People retiring at 55 have the best experience with 20 years of travel, leisure activities, new sports and hobbies; free of the burden of children, mortgages and work pressure. At 75 life starts to slow down, one naps in the afternoon and needs determination to do anything physical, at 80 life becomes more passive and personal care needs increase, a return to baby- hood. This continues until one exists not lives, of course, life  can still be enjoyed and large variations occur.

There appears little to be gained by delays to retirement, it should be a personal choice not a bureaucratic decision and an added incentive to save for retirement, it follows from the welfare burden attitude to pensions rather than the self-provision and the opportunity of a logical approach and true democracy.

Pension provision needs drastic overhaul, but not in the short term penny pinching approach currently being followed. Pensions need to give value for money with a clear separation of earned and welfare pensions.

The Spending Review appears to be in the same position; targets that have been set but not thought through, resulting in the easy way out, cutting services that were intended to be protected and hitting the worst off. My disabled son who lives alone has had all his care services cut, his needs have not changed, they have just moved the goal posts and not paying for his level of care. He is not alone, the Company who runs his personal alarm system say they are collecting their equipment from many homes, leaving people at risk.

Libraries are closing, bus passes withdrawn, charity support withdrawn and many jobs lost, yet the Prime Minister can still find the odd billion from the savings made to spend on one thing and another.    

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John’s Blog 41 – Pensions – New Era Part 3

The main advantages of the changes proposed are that all in work will have their own guaranteed pension pot and be self reliant and independent of the politicians influence. The State pays into the scheme a part of your National Insurance contributions, which would be put aside for your retirement benefit.

It is envisaged that the schemes will be run by Mutual Pension Societies with Funds mainly invested in National and Social infrastructure of Transport, Energy, Housing, Schools, Hospitals, etc., giving a modest average return of 4 to 6%.  Although funds could still be invested in higher yield areas

The recent turmoil in the Stock Markets with its drastic impact on pensions, making retirement impossible for many is a good indication that something needs to change in the system and long term investments.

This should give all in work the minimum pension of £140 per week proposed by the State plus an extra pension based on the contributions paid into the contributory scheme, which would be considerably better than those indicated for the new State Nest Scheme.

The scheme should give a large incentive to save for retirement with a 4% contribution effectively being increased four times, a firm return on NI contributions and clear and stable value for money outcome with the saving fund being seen to do good in ones neighbourhood, promoting growth and pride.

The State stands to make large cost saving on the same scale as the spending review but with less pain. Present basic pension costs represent 50% of NI income which is the level the rebate is set at; for the first ten years State costs follow the present expected increases but over the next ten years stabilise tracking across to the 50%NI income following that thereafter. Rebate costs would be stable matching 50% of income.

Potential State savings start from 10 years; at 20 years they are some £15bn rising to £45bn at 40 years in real terms and  depending on the actual population increases. There should also be substantial savings on benefit payments with the improved pension provision. A win-win situation for all concerned.

At the 20 year point, the State relinquishes all responsibility for pension provision other than the welfare pensions and pensioner benefits or any internal Departmental arrangements. Existing schemes would not be affected unless by choice, although Public Sector should change to a similar funded system.

The proposed scheme is for all in work who have no pension provision outside of the State and is aimed to bring them up to the same level of security and excellence of existing Defined Benefit schemes.

The proposals are based on the latest ONS population projections from 2008 to 2033 and 2058, taking increased life expectancy into account and therefore need no delays in retirement age, increases in contributions or reductions in benefits, all put forward as necessary to maintain pensions.

In September next year the State Nest scheme will auto enrol all in work unless they can show good reason to opt out, i.e. adequate alternative arrangements. It will require Employees to make 5% contributions from gross wages, giving 4% nett plus 1% tax relief and Employers will make 3% contributions, giving 8% total.

The money will be collected by the State and managed by them and major Insurance Providers in a Defined Contribution Scheme, renowned for its uncertain and poor performance; where members take all the Commercial risk. This sounds like a re-run of the present National Insurance scheme which keeps all in poverty.

It is planned to give a replacement pension of 15% over 40 years, a pension yield factor (earlier blogs) of 1.9;  to keep pace with inflation requires 2.4 giving a pension of 19.2%, whilst the defined benefit scheme proposed should give 30% to 45% and greater security guarantee.

There is a need to demand a better deal, you will be paying the money, making the saving contributions and deserve value for your money, with the knowledge that it is well looked after and secure and gives a reliable and guaranteed outcome.

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John’s Blog 40 – Pensions – New Era Part 2

The last blog outlined a proposed scheme to improve pension provision for all in work, which will now be expanded as simply as possible, although it may get a bit arithy but don’t go away.

The current spend on State pensions is £67bn, made up of £52bn on the basic pension; £15bn on the second / graduated pensions, with a further £29bn or more on welfare pension credit and benefits.

The Pension spend is forecast to rise to £91bn by 2016 and increase steadily at this rate due to projected over 65 population rises. The question is where does the money come from? And the answer unfortunately is from those in work by increases in NI contributions and taxation.

The State solution is to increase the basic pension to the poverty level of pension credit at £140 per week £7,280 pa), abolish the second pension and introduce a further contributory scheme Nest in 2012, which will be compulsory for all not in schemes at present, effectively an increase in NI contributions.

This requires an 8% contribution in a defined contribution scheme to be managed by the State and the major Commercial pension providers, the same people responsible for the present recession crisis. DC schemes are known for their poor and unstable performance and Nest is no exception, projected to give 15% return; on the average £20,000 wage this is a pension of £3,000 giving a poor total of some £10,000 per year.

Such penny pinching measures just postpone pension doomsday, but do offer a good opportunity for a new bold and radical approach, the change to a funded defined benefit scheme where contributions are put aside to build up individual pension pots to give a guaranteed value for money adequate pension.

For the State to put contributions aside and pay existing pensioners would double expenditure and is dismissed as impossible, but if combined with the new and existing contributory schemes it becomes feasible with huge advantages to members and to the State who stand to make cost savings on the same scale as the spending review but with less pain.

The new scheme replaces the State pension scheme but complements existing DB schemes, with a change to funded for the maligned PS schemes and is aimed at all in work who have no provision outside the State.

The new contributions of  8% are matched by an equal NI rebate, which is roughly the amount spent on the basic State pension, some 50% of NI income and these 16% contribution savings buy units which are matched to age and Fund performance eliminating the unfair fund distribution problems of final salary.

It is designed for a forty year saving period from 25 to 64, which allows for work and wages to have stabilised before contributions become due, although earlier savings are possible. In order to allow fund build up and to make NI rebate affordable, entry will be limited to 25 to 44 initially building up to 65 over the 20 year transition when the new scheme pensions then start, becoming fully established 20 years later.

These build up and are aimed at giving a basic pension of £7,280 doubling to £14,500 pa. + inflation at 2.5%,  giving a return based on total contributions made; it allows extra contributions and includes a safety net at the minimum level for low and intermittent earners, assuming all in work are paid a basic minimum.

In the steady build up model over 20 years, the State meets existing pension liability for the first ten years and this is progressively transferred to the new scheme to allow the State expenditure to move across to the target level of 50% NI income. In a second model the S2P expenditure is used to increase available NI funds between 15 to 20 years.

 A second cleaner approach of instant transfer was also considered which requires the State to create a Pension Bond to meet existing Pension liabilities from age 45 on. A Bond of £900bn with a 4% yield could meet the pension demand with population projections and 2.5% inflation increases, but requires the new scheme to progressively buy the Bond over forty years to make up the balance pension payments.

In either approach the new and existing schemes will subsidise existing pension payments, but those in work will foot the bill anyway, one way or another. The next blog will show the advantages of doing it this way.

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