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
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