John’s Blog No.68 – Pensions –Neglected Pensioners

The attitude to pensioners and pension provision was aptly illustrated in the Budget and is prevalent both by politicians and the Industry overall. They are not seen as people but as statistics and a source of ready money.

The majority work hard all their life, pay their Taxes and National Insurance for some 50 years, which is meant to invest in their retirement and establish their position in Society for its support in later years. In this day and age this is a forlorn hope, a promised dream that will not be realised in the UK.

 The State readily takes National Insurance contributions, keeps a record of what has been paid and for how many years to build up a pension profile on what they should get in that expected retirement. However instead of carefully putting aside those hard earned savings contributions, the State takes the money into their Treasury coffers using it as taxation income.

The reasons given for this apparent massive fraud, is that the State can give secure Bonds or promissory notes for the future and therefore do not need to put such savings away and will be able to keep all and any promises. The reality proves different as recent events in Europe show; Governments are not so secure and safe as witnessed in Greece, Portugal, Eire, Italy, etc.

The UK is no different, progressively successive Governments have failed to keep pensions up to the levels that the contributions made, earn, or deserve and even to meet the barest minimum of cost of living inflation. The latest raid of the “Granny Tax” is justified with the “never had it so good” inflation rise in April, but little is made of reductions in Pension Credit that also came in, cancelling out a major part of the rise, which many now depend on.

Pensioners have been forced into poverty by a steady decline in real terms of the earned State contributory pension, which is now blatantly referred to as Welfare . Meanwhile the real welfare benefit, represented by the Pension Credit, paid to those who have made little or no contributions or for a short number of years is at a much higher level than the earned Basic State Pension.

From April the BSP has its much publicised rise to £107.45 per week, for a couple this is £172.10; however the Government maintains that the minimum a single person can live on is £137.35; for a couple this rises to £207.90. These higher values are the basis of Pension Credit and those eligible will also get substantial Council Tax and Housing benefit, prescription and dental costs, plus other benefit help, overall some half as much again.

The State pension is therefore meaningless and NI just an extension of taxation; further new proposals are even worse with the abolition of State second pension and SERPS relief, with a “munificent” £32.55 increase in BSP, which will still leave pension contributors poorer than welfare benefit, which pensioners will unwillingly be forced into.

Public Sector pensions are moving in the same direction with increasing contributions, lower pensions, for a shorter time and private pensions are also deteriorating. The increased Life expectancy deception continues, used to delay and reduce pensions, of course we are living longer, but at what rate and on what scientific basis (future blog).

The tax allowance reduction for pensioners, announced in the Budget, appears ill- conceived and ill-thought out; a back of envelope jotting of the day before, with little positive benefit to pensions and just tax grabbing. It was always the principle that the average pensioner should be freed from taxation and NI in retirement, which reduces the demand on Pension Funds and at one time the State, until their pensions dropped so low. There is little good reason to change this, Pensions are ploughed back into the economy and are a valuable regional income source.

Pensions are a mess which could be effectively sorted out if the blinkers were removed and the problem tackled in a realistic and innovative manner, standing back and looking at what could and should be done and achieved if they were treated as long term personal savings, with a proper assessment of the needs and demands of an ageing population to give them the Community care and attention they deserve, with savings self sufficiency and dignity.

The way forward has been outlined in previous blogs, but it is uncertain whether this has been understood and an attempt will be made to repeat this in a simpler way in the next few blogs. Funded schemes are essential and defined benefit the only satisfactory method of implementation.

Annuities, Public Sector, NHS, Teachers, Police, Local Government, Hutton, State Pensions, Transport, Comment

John’s Blog No.67 – Pensions –The Budget

Pensions took a major step backwards with the Budget this week, which shows clearly the Chancellor, Treasury and Government’s blinkered and short sighted view and approach to the whole problem of pension provision and the failure to treat pensions as personal savings.

The main areas of change to Pensions which affect all in or retired from work and which undermines the “Budget for workers” claim are:-

Tax Allowances – Increased tax allowances for pensioners are to be abolished making them an increased source of tax revenue. This will only increase contribution costs requiring larger final benefits to give the same income and goes against all common sense considerations of the purpose of pensions. How it will have no effect on pensioner's income yet save the Treasury £3bn remains beyond comprehension.

 Pension income should be free of taxation for the majority except the higher earners; with 50% of wage as the target pension aim, the tax allowance at retirement should be half the average wage at some £12,800 current, or at the perceived desired income level, put at £14,000. Pensioners deserve nothing less.

New State Pension level – this is to be set at £140 per week, £7,280 pa and announced as a major advance, but will still be at least £20 per week lower than the poverty level of Pension Credit, when one takes into account Council Tax rebate and other benefits, with no incentive to work and save.

Abolition of State Second Pension and SERPS – only referred to in passing but part of the above package and affecting all in work, effectively a major reduction in NI earned pension, which on average wage is many times greater than the paltry £32.55 pw proposed rise and will discourage pension savings.

Royal Mail Pension Scheme – is to be taken over by the State, this one slipped under the woodwork and appears unrelated to general pensions. The main aim is to make Royal Mail more attractive to privatisation by eliminating the alleged £8bn Fund deficit, but if one looks at the latest Fund accounts it is difficult to establish how this shortfall arises. Funds look healthy with £28bn of assets, current growth of 8% and pension payments of 3.25%.

Effectively the Government is putting the Fund into State Liquidation, plundering member’s pension savings in return for a promissory note of a future 3% return on assets, which would turn it into an unfunded Public Sector scheme and “a future burden on the taxpayer”. It makes no sense and Post Office Employees should be fearful. The State is getting a good deal, taking and spending hard earned pension savings with little guaranteed return. A large step backwards.

These changes reflect the whole State approach to and understanding of Pensions; they are seen as cash flow problems in unfunded schemes with little regard to capital assets, investment income and compound growth. This attitude appears to be being applied to Private scheme regulations, Pension expenditure has to be balanced or below contribution income, with the basic 40 year funded strength of investment income and growth disregarded.

Royal Mail is a good example, hence the interest, pension payments amount to £912million, member contributions are £149 million and Employer’s were £428 normal plus £292 deficit funding, matching payments, however there was £556 million of investment income and £1,521 capital growth making deficit payments superfluous. If retired funds were separated from active funds the situation would be clearer and simpler.

These are all examples of the distorted State thinking and attitude in which welfare and earned rights are confused and not separated, inherent in State pensions and pension credit, but stretching into the fiasco of child allowance. Originally dealt with as a tax allowance together with married allowance, the idealists argued these failed to benefit the poor; welfare child payments to the poor would have been the obvious solution, but it was made universal leading to the present envy and resentment. It costs more to support a wife and children, which should be reflected in taxation.

Of course if you want a Communist style pension system in which all draw the same subsistence poverty level pension, then the Government is doing an excellent job, but this is putting the clock back on the Enterprise Britain Era in which all strive for a better future even in retirement, stifling pension saving initiative.

The Chancellor is making much of the inflation increases coming in to effect next month, but these barely meet the cost of living increases and are not a real pension increase. In fact all pensioners on Saving Pension Credit will find that the Chancellor has clawed back £3.36 from the basic State pension inflation increase by reducing the qualifying income, not widely advertised. In real terms, poverty stricken pensioners are worse off as a result of this miserly budget, money given with one hand is snatched back with the other. Now you see it, now you don’t?

Annuities, Public Sector, NHS, Teachers, Police, Local Government, Hutton, State Pensions, Transport, Comment

John’s Blog No.66 – Pensions –Investment

There were reports that the new Investment Bank Tax in Europe and the UK, intended to recover some of the losses incurred as a result of the bank collapse associated with irresponsible lending, will in fact be passed directly on to customers. The  Bankers themselves will probably avoid any penalty and the main cost will be borne by Pension Funds and small investors.

This highlights once again how pensions are seen as tax revenue opportunities to be raided whenever possible, regardless that they are meant to provide for the population’s retirement in order to save the State the cost of supporting them at that time, with the resultant alternative burden on the taxpayer.

It also emphasises how unsuitable the conventional pension investment options are becoming, although still offering large potential gains, they are becoming more speculative, uncertain and risky and an attractive honey-pot for predators. Slow but sure can offer a much more stable outcome, as shown in previous blogs.

There is insanity and lack of morality in Banking and Financial Services today, they have lost direction and purpose and become a money-making rather than servicing machine. This is a top down problem, at Branch level, staff are courteous and helpful, intent on good service but with little authority, the rot starts as you go up.

One wonders at the anxiety shown to appease higher management staff with high salaries, bonuses, pensions and perks, yet they made all the mistakes with rash lending, mis-selling etc. which is costing them and the country dear.

 This week there were announcements to increase mortgage rates, yet the bank rate stays unchanged and saving rates are pathetic. Current inter-bank rate increases are blamed and cost of borrowing, but this is a nonsense, who is lending to whom and what has changed?

One other aspect is that much of the stock market is being invested in the Far East and South Americas and in fact deprives the UK of large and important economic investment, which could create growth, reduce unemployment and retain hard earned savings within the country.

Such internal investment in infrastructure, housing, energy, transport could offer steady returns of 4 to 6%, which will steadily build to give better pension outcomes than are presently produced in the current system. In addition such returns will be steady and stable, after all we are still living in such investments made by the Victorians.

Pension savings have also been dominated by Tax relief, although an attractive incentive, there is a downside due mainly to the associated bureaucratic rules, regulations and restrictions on realisation. They also cease to exist as savings and lose ownership, being no longer treated as belonging to you and losing the protection now given to personal savings. This can result in excessive charges and even complete loss of pension funds.

An increasing number are putting their money away in Isa’s, taking the advantage of tax free interest returns and at present allowed saving levels can be built up into substantial funds, which can be taken out at any required age; many are putting money in buy to let, servicing loans to build up good Financial portfolios.

Of course such methods lose some of the advantages of pension saving, in particular Employer contributions, although alternatives can be negotiated, such as share distribution or options, which are not solely restricted to the large salaried Directors.

Contracting out of the State second pension was another area that became popular but fund growth was poor giving results less than the state return and is now restricted to large pension schemes. One aspect that is not fully appreciated is the funds can be converted to pension from age 55 with tax free lump sums bypassing State Pension rules.

Of course a good, fair and efficient pension system would eliminate the need for alternate schemes and stabilise pensions, security in retirement, benefitting the economy overall

·         Pensions need to breakaway from the “quick buck” mentality

·         They need to break the age dependency of the State system

·         They need to invest Funds in Britain on Physical and Social structures

This would create jobs and economic growths, giving a solid foundation for future pensioners. Full employment,  a balanced  economy overseas and a Britain first mentality,  an essential part of future survival in the present chaos.

 Annuities, Public Sector, NHS, Teachers, Police, Local Government, Hutton, State Pensions, Transport, Comment

John’s Blog No.65 – Pensions- Social Responsibility

This has suddenly come into the news as a result of Banker’s bonus; elderly care and the recent riots and pillage, with all the outcry associated with topic of the week. Yet it has been a problem which has been steadily growing for many years, resulting from a general loss of morality and basic standards.

Since humans first started to group in tribes for mutual protection and strength, social responsibility has been an integral part as that grouping developed, this civilisation developed into today’s sophisticated society, but the basic reasons are being forgotten.

It is all being blurred with human rights displacing social rights, once straightforward when you offended or broke the rules you were driven out of the tribe, often killed or left to die. This slowly became inhuman; death penalties were abolished, rehabilitation was started with the criminal becoming more important than the victim.

Criminals by their own actions should lose all social and human rights, apart from basic needs, until they have earned re-instatement preferably by social work. This would eliminate compensation claims, immunity from deportation and all social benefits both financial and communal.

W e have descended into a society where Idealism reigns over Realism and the basics of social responsibility  take second place; Community, Regional  and even National aspects of society are lost in personal interest and global demands. There was a saying- “Charity begins at home”, which is still important today as ever.

A good example occurred this week on the Remploy fiasco, where disabled people are being expected to integrate into the normal workplace for which many are not suitable. From my own experience, with a disabled son, they need extra care and attention, many can cope and excel but the majority cannot cope with the stress, pressure and prejudice that occurs in competitive work.

The true economic facts have not been disclosed, even to those involved in local or regional areas, how much more is the cost per person than incapacity benefit and other disability costs and support, especially if they deteriorate due to inactivity on the dole. There is nothing wrong with specialised employment, particularly when successful.

This type of idealism occurs regularly now, which is OK as long as it is combined with common sense and good old fashioned sensitivity. People are no longer individuals but statistics to be disregarded or even discarded as the occasion or economics justify or appear desirable.

Our children cannot find jobs, our elderly and disabled are neglected, our students put into debt, the poorest poor are pandered at the cost to the lower paid workers; Money is God and to save costs, short term measures result in redundancies that cost the State more in the long term.

There appears to be no overall assessment of social requirements, their true cost and what is affordable; of course we are living beyond our means but what should those means be?, what is the real internal cost to the country?

How much can we afford to import?; how much expenditure abroad can we afford?, including charities and individual immigrant cash exports; what is the money circulation ratio and how far can we expand it.

These matters do not appear to be considered, we are more concerned with Commercial ratings, our global position, our reputation abroad than our balance of payments deficit. The successful countries today pay due regard to these factors and the more advanced look for a balanced welfare situation.       

Of course this is a long way from my normal pension blog, but does affect pensioners, who are becoming an increasing part of vulnerable Society, dependent on charity and benefit, often against their will. A fair and well supported pension system, saving today for tomorrow could well avoid this situation becoming worse.

Annuities, Public Sector, NHS, Teachers, Police, Local Government, Hutton, State Pensions, Transport, Comment

John’s Blog No.64 – Pensions- Review

In the last few blogs, we have looked at the basis of pensions, what they achieve, the failings and what should be possible and lamentably even the simplest objectives are not met with little being done to correct the situation.

The system plods on in the same ineffective way giving an unacceptable outcome, resulting in few saving for retirement and expecting to live on benefit. Yet the Commercial and State benefits of a healthy and good contributive pension system appear ignored.

Pensions are not working and the logical steps are not being taken to correct this, these could be:-

·         Treating Contributions as personal savings with all the associated rights and protection

·         A universal defined benefit scheme in which payments are directly related to such savings

·         Elimination of age dependency with individual self sufficiency

·         Integration of State NI pension in such a scheme with separation from benefit aspects

·         Defined growth targets and guaranteed outcomes

·         Personal choice on retirement linked to pension pot

·         Full evaluation of over 65 population effects and needs in such a scheme

In many ways Public Sector pensions are indicative and illustrative of what not to do, yet they are the largest defined benefit scheme with the  majority of contributing members overall, exceeding all of the private schemes and therefore are an important part of the present pension system.

Yet they are run in a dictatorial manner as part of the bureaucratic machine in which member’s contributed savings and accumulated funds are ignored and the Employer’s contractual contributions treated as benevolence. The resultant system in which member’s funds do not exist is little less than highway robbery.

 This of course has been the position with NI contributions for many years, resulting in the collapse to poverty and benefit levels of the State pension system. What should and could be an extremely viable contributory scheme with the build up of large and beneficial investment funds is now an empty shell.

In September its replacement scheme NEST will be launched, this is hailed as a new beginning to allow millions in work to save for their pension future. The fact that they have already been doing this all their working lives appears forgotten, in effect NEST increases NI pension contributions by 4% for members and 3% for Employers.

The scheme is being run by the State, supposedly independently, with the money in the loss making defined contribution scheme with no guarantee of outcome at retirement or how the money is used or “invested”. The sums could be large; there are 20 million in work not saving for retirement; 8% of the lower average wage of £20.000 gives an annual income of £32billion. This should yield twice the 15% return projected from NEST.

We have indicated in previous blogs what such levels of investment in the UK infrastructure could do to the economy, growth and prosperity. The likely outcome will be to boost economic growth of the Far East, Germany, Eastern Europe and S. America or for the money to disappear in the present gambling casino of the Stock and Financial Markets with little real benefit to members.

There has been little response to the drastic pension reform proposals outlined in blogs and sent in more detail to the powers that be. They are apparently too advanced to be readily taken in by an establishment entrenched in current practises, in which change is seen as impossible even though it is inevitable.

One hears incessantly about the ageing population, the need to save more, retire later and receive less, but no one apparently thinks the problem through to a logical and acceptable solution. Longer life can be met by existing saving levels; longer working is not needed and deprives youngsters of work; modest returns, like the tortoise and hare fable, can outstrip the present investment jungle.

There is sufficient money and contributions in the existing pension system; it needs to work more effectively with less erosion and waste; ownership as personal  savings properly accounted for; invested and allowed to grow, could meet all retirement needs, together with the Capital social, structure and investment needs of the UK

Annuities, Public Sector, NHS, Teachers, Police, Local Government, Hutton, State Pensions, Transport, Comment