The Government’s Office for National Statistics have just released a report on Pension liability in the United Kingdom, the first for many years, which shows that the liability for State Pensions at a massive five trillion pounds . That is five plus twelve noughts £ 5, 000, 000, 000, 000
It is stated that this is not a National debt but only a future commitment and illustrates the fantasy world that State pensions live in.
Meanwhile in the real world, Private pensions, with a liability of two trillion, are forced to show that they have these funds available in assets, investments or cash or pay into the Funds to make up any shortfall, causing many to close schemes they cannot afford. The Post Office is a good example and in order to sell it the Government intends to take it under its wing as a commitment and spend its assets.
The State Public Sector pension liability is £1.2 trillion , for which they pay substantial contributions with mediocre returns and the commitment promise, soon to be joined by the lucky postmen.
The balance of £3.8 trillion is the State basic and additional pension with the former already at subsistence poverty level, with payments projected to rise from the present £69bn to £400bn by 2050, even if wages keep up with inflation it is still a rise of over two in real terms. How are we going to afford it? as the working population is expected to hardly increase over this time
The Government is proposing to default on its additional pension, currently some £14bn, which is the second pension many depend on, another commitment on retirement age will go as this is raised to 70. This is a triple whammy, five years less pensions and more NI contributions plus the fact that up to 30% will not live that long to collect any pension at all.
Even then there will still not be enough people working to support the older population without major increases in taxation, the other solution is to make them contribute more in to their own private pension, which comes into force in September. Many do not realise the effect this will have on their income.
Of course the real solution is to start converting some of this liability into real pension fund savings as private pensions are expected to do and as put forward in earlier blogs. The present pension payments are in fact contributions from those in work into the NI pension scheme which have been stolen to pay existing pensions.
If some of this was put aside as an NI rebate or issue of Pension Bonds over a 20 to 40 year period, the transition to a fully funded self-sufficient scheme could be accomplished. Restricting entry age to 25 to 44 age gives a 20 year period for fund build up, which could be combined with the new contributory scheme.
The main advantage is that as money is put aside it can build up and grow like any funded or savings scheme, yielding a much better return than the spend today unfunded scheme. Savings increasing with inflation and growing at 4% over a 40 year period yield returns some 3.6 times the annual savings alone, converting £69bn per year into final payments of £248bn per year in real terms.
In other words if the present State pension spend was put away in a funded scheme at a modest return it would yield sufficient return to meet the pension demands of 2050 with sufficient over to increase pensions to a good living standard and even meet elderly care needs.
Over the 40 years the money need not stand idle but could be invested in the Capital projects we so sorely need whilst creating jobs and economic growth, converting the present fantasy world into reality. These would need to be good reliable long term investments in bricks and mortar, transport, energy, industry or anything that would give a steady return over many years and not the cash quick fairies.
The State needs to meet the same rules and regulations applied to private pensions and put assets away on pension funds to meet the liabilities. It seems to have a disdainful attitude to assets, which is writes off, scraps or gives away without thought. There are more than enough contributions and pension payments to meet all future pensioner needs, it just needs to work hard and grow over the 40 years available.
The days of fantasy are over and a stable and guaranteed future is needed for our youth, working and elderly population who deserve a country free of poverty, anxiety and uncertainty. Our politicians need to earn their keep and start planning long term and sensibly with their feet firmly on the ground.
Annuities, Public Sector, NHS, Teachers, Police, Local Government, Hutton, State Pensions, Transport,
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