John’s Blog 86 – Pensions – The State

If we look at the whole of our Pension provision policy and its basic pension mechanics, which unfortunately involves figures and sums, we find some surprising facts and figures. The State Pension spend on the last figures released amounts to £102bn made up of :- State Basic - £55bn State Second - £14bn Benefit spend - £33bn This is made on an unfunded “pay as you go basis and spends the whole of the income from NI contributions, an unsustainable situation, projected to get worse. If it was run as a funded scheme, then the costs would be dramatically reduced. Contributions of £20bn, put away as pension savings, growing or earning at a rate of 6%, would over 40 years meet these costs in real terms, and give potential expenditure savings of £80bn per year. This is much greater than any of the economic review savings that is creating so much hardship in the present cuts in spending. Even at a more modest investment return of 4%, there is still a saving of some £67bn per year real and shows the strength of pension savings in a funded scheme, where the money is made to work. There is of course the problem of the existing pensioner spend, but this is not as great as may be first imagined and can be covered by careful transition management over a period of 20 years as outlined in previous blogs. At present life expectancy, the existing pension spend will have halved in 20 years and new pensioners entering retirement will be progressively met by the funded scheme; it can be shown that initial extra spend on NI rebate contributions of £17bn would meet the transition. This money however is pension savings in an investment Fund, which can be used in present proposed Capital spend on infrastructure projects or the transfer of State assets in buildings etc., and therefore does not appear as a current expenditure. In addition the investment income generated would meet the pension payments without the need to repay the Capital, which steadily reduces in real terms due to inflation. The overall effect would be to release some 50% of the income generated by National Insurance contributions to do the work that was intended in employment, training, health and welfare of those in work, over a transition period of 20 to 40 years and give a more sustainable and satisfactory pension system. Such a scheme should be independent of the State and be run in conjunction with a modified Nest contributory scheme as funded defined benefit scheme, whose advantages are obvious without the need to increase contributions, delay retirement and also give a better retirement outcome. The other major advantage is besides saving money, the substantial Funds would be available for widespread investment in the UK to create a growing economy and full employment. It is time the problem of pensions and older people was taken seriously and intelligently, the answers are there, they just need separating from the rubbish and modern commercial opportunism, we are talking about people here our parents, grandparents and our own and children’s future.

John’s Blog No.85 – Census 2011

The Census 2011 results for England and Wales are finally out and for persons, male and female, show increases from the last Census in 2001 of 11% in retired population over 65 from 8.312 to 9.223 million, just under a quarter of the total population rise of 7.1% some 3.7 million. If these were rates projected over the next 20 and 40 years, they would give a rise of 23% to 2031 and 52% by 2051, resulting in an over 65 population of 11.34 and 14 million respectively, which is much lower than the current projections for over 65 population doubling or worse in this time. Furthermore this was a period which saw a rapid rise in immigration and the large influx from Commonwealth Independence and post WW2 baby boom, which are just starting to enter retirement, resulting in a peak in elderly population over the next few years. The over 85 population has risen at a higher rate of 24%, some 242,000 to 1.255 million, due to the accumulation effect resulting from reduced mortality at the early ages, but is only 13% of the total over 65 population and declining rapidly. However if one compares the working age population age 16 to 64, this has increased by 9.2%, indicating an overall growth of those entering retirement, rather than longevity in retirement given by forward projections. If one also looks at the progression of the 55 to 65 into retirement at 65 to 75 from 2001 to 2011one finds an 88% survival compared with 73% within 2011, also indicating increased transfer rates. Again looking at the decline of the over 65 population with age, one finds that at age 70 this has dropped to 71% and down to 47.4% by age 75, which has dramatic impact on the effect of retirement age, which if delayed until age 70 means there is a one in three chance of never drawing a pension at all. Life expectancy is the point at which the population has halved; the Census figures suggest this could be just under ten years and not the twenty years given by Life Tables, which are based on mortality rates. These show trends and because they involve less than one per cent of the population, need time to take effect. Census population figures are more a snapshot of what is happening at that year in time, a head count of numbers, in the normal flow of life from birth to death. Although medical and social advances have reduced the losses, there is no reason to believe they have stopped altogether. The present figures do not therefore justify the panic reaction to the problems of increased longevity and the drastic measures of delayed retirement, increased contributions and reduced benefits to meet a crisis which appears to be exaggerated and being dealt with in the wrong manner. In any event even the worst projections were manageable, but only by a change in attitude and scheme basis, particularly as regards the largest provider of the State. Individuals need to be more independent and self sufficient in providing for their retirement. It is no longer possible for those in work to support the increasing numbers entering retirement, the basis of the present State Unfunded pension system; each person in work needs to take their own pension pot with them, whose size must be large enough to support them when they relax after a life of work. This size may need to change to meet any increased lifespan and special needs associated with elderly care, which may need increased contributions, but private pension provision is very inefficient with high costs and low annuity returns and State provision is outdated and unsustainable. The population over 65 is increasing but the reasons and manner need greater study and understanding; we are living longer but is it catastrophic or just acceptable enough to be allowed for and enjoyed. In a well managed society pensioners are an inherent part of the economy and a benefit not a burden.

John’s Blog No.84 – Elderly Care 2

The White Paper on elderly care was a non event, doing nothing to tackle the problem or advance and meet the needs of the elderly population; its main content being to specify the legal right to care but not who, how, what and why. Any decisions or action are postponed for several years at least until after the next election, but increasing the burden on the individual and Local Authority without defining the Health care boundary. Of course owners will be given the opportunity to mortgage their home again at an undefined interest rate to meet care costs. The main effect of these ill thought out and incomplete ideas will be to encourage anyone retiring to sell their property and rent, or take out equity release before the State does and spend or distribute the money to one’s children. It will not be worth owning a house after age 70! The Government will go down as achieving all the ideals of Communism in the complete redistribution of wealth from the middle classes, whilst maintaining that of the rich and privileged, just as its predecessors destroyed mining, manufacturing, the railways etc and our way of life. It is no longer worthwhile to work and save and build up an inheritance for your children, or even marry and have children at all, meanwhile you are forced to live beyond your natural lifespan in a state of increasing poverty and misery and often advanced senility. We need to return to basics and define the purpose of living, its aims and objectives, family, moral and social responsibilities and adjust that with the material needs. Work and providing for your personal needs, children and elderly is an inherent part of Society, completely opposed to the current greed, envy and self-interest. The problem of longevity and increasing elderly care need, requires assessing carefully not with wild figures snatched out of thin air or quick fix cost cutting solutions. The numbers, levels and cost need defining, where does £100 per day come from, one can get a short break at a third of that cost. A good example is the over 80 population projections, the figures available appeared based on a uniform linear projection of reduced mortality rates, yet life is not like that, ageing occurs at a much more rapid exponential rate. There is no immortality elixir and numbers fall off more rapidly with age. The real problem is the lack of Government today, at least half the expenditure is wasted on military systems scrapped before use; expensive PFI rents; idealistic benefit and human rights costs; innumerable post mortem enquiries and gross overcharging for external services and goods, with no overall objective or purpose. We need to get back to a working and saving society, living within our means, with pride in our family, community and citizenship, plus our ownership of home and possessions, lifestyle and knowledge. The spend today forget tomorrow has failed, with no better example than our pension and retirement provision. The economic and banking crisis has shown the way, we just need the will, determination, vision and leadership to proceed, which unfortunately appears to be lacking in the present approach. Large amounts of money are still being poured into the Banks in so called “quantitive easing”, who are not passing it on; the economic approach is outdated and our overspend balance of spending abroad remains unchecked and increasing. We are living hand to mouth from crisis to crisis with nothing fully planned or managed from immigration chaos, Olympic security, Benefit reform, military expenditure and all other State expenditure, whilst time and effort is wasted in Parliament on non-essentials. Pension savings are the hardest hit by the present policies and yet are the area which could create growth, stabilise the economy and give large potential State expenditure savings. If “QE”was used to reform all State pensions to funded schemes, the money would serve a dual purpose, ensure pension stability and provide large investment funds directly into infrastructure and UK Business expansion. The real “Big Society could start here by giving freedom of retirement choice to all in work, not off loading unwanted costs onto charities and individuals, effectively indirect taxation. House of Lords reform, well overdue, could be the next step. It should remain non-political, elected members should be truly independent and representative, from Community groups, Charities, Welfare groups and all voluntary groups. We just need basic commonsense and vision for our future.

John’s Blog No.83 – Elderly Care

This is getting increasing media attention but official proposals and reports are continuously delayed probably because no one knows how to tackle the problem or even define it. This could be the nub of the matter, because like many of the current problems today the approach is from the wrong end, starting as a cost cutting exercise and what can be afforded on what is left. One needs to start at what are the, needs, how they can be met, the best way of meeting them using all the resources available, then what are the costs and how and what can be met? The current approach is fragmented, haphazard and illogical, with conflicting responsibilities between Central and Local Government, NHS and Social Services and the various charitable organisations, including Families, with major dependence on the latter. There are also very basic Social and Moral issues involved, who is responsible is it the State, Community or Family, what is a reasonable lifestyle or a pointless one, who decides on a vegetative state and where does individual choice or wishes occur and be allowed. Needs and numbers are easier to assess, one can start by defining the levels of care from simple homecare to more complex ones, social clubs, retirement homes, sheltered housing, residential care, nursing, hospital and Hospice needs. Numbers can start at existing ones with more detailed studies on future trends and projections. Costs for care can be high as they involve large labour and building costs on the one hand and undervalued and underestimated family, charity and community costs, which could all be better integrated, with considerable savings. For example luncheon and social clubs play an important role but are the first to be axed. Councils set residential care costs at some £23,000 per person per year; private suppliers put this much higher, but what is a realistic figure, how much is affected by rules, regulations, licenses etc, created by rogue incidents or accidents and are too severe. Can permanent staff be relieved by volunteers in afternoons etc.? Can Diferent homes meet diferring needs without upset. Care assessment could be on a much wider basis, involving GP’s, family, communities and charities and is too closely connected to commercial considerations, mainly of cost. Retirement homes could be planned to include social needs, instead of just living compartments, and include Housing Associations to give simpler transition and progression as care needs increase. A lot could be done with a little thought. Contributory funded pension schemes could play an important part in elderly care, in addition to investment in buildings. After retirement, from age 80 on, Fund disposition tends to be uncertain and currently is pessimistic resulting in surplus; good fund management could ensure this allowing money release to meet care costs. This should not be used by the State for cost cutting, but as a means to ensure adequate and extra provision to members in place of any proposed Capital levy. One of the major problems in Economic policy is liability postponement, which is placing an ever increasing burden on the working population, nowhere is this more apparent than in the State unfunded Pension system. National Insurance contributions need fundamental change; they should be forward savings for retirement and an Insurance for working people, a return to the basic concept, but modernised. Members contributions should mean something and not just thrown into the welfare pool. The need for extra contributions for pensions is being implemented, but not recognised as individual personal savings, which together with NI contributions should be used for the sole benefit of members and embrace Public Sector and all other pension schemes. This could create aims, objectives and rewards for those in work.