John’s Blog 88 – Pensions – Olympics

The spectacular opening ceremony and panorama of British history brought a major reaction to the mix of reality and fantasy and the surreal results of children’s literature, music, entertainment and special effects, with the transition from agriculture and hard work of mining building and manufacturing to fairytale land. This was a real reflection of modern life in Britain today, where we do not appear to be able to separate the real from the imaginary, part of the reasons for the Bank crisis and recession and a major problem. Our financial Institutions buy and sell coffee beans before they are grown, gas, oil, coal, steel and copper before they are mined and refined and many other imaginary items or “futures” and make real money, which they hide away. The approach is extended in many areas, we all buy things we cannot afford, spend money we have not got and have assets well above their worth. Houses are a good example, the property boom raised values well above the cost of agricultural land and the cost of rebuilding them, putting homes and rents beyond the reach of ordinary people, especially youth and reducing mobility on existing owners. This extends globally to Countries, who play with “board game” money: borrow above their means and then are crippled when the “gnomes” revise their risk and raise interest rates to unaffordable levels. Is this money real? You work hard and are paid by transfer to your Bank, whose cash machines issue you with paper notes promising to pay the bearer; this promissory note is part of modern culture, depends on confidence and is lost when major debt occurs. The modern day problem resulting from moving into this fantasy world. Nowhere is this more apparent than in pensions today, in the real world of funded Company and Private pensions, schemes are expected to have adequate assets to cover pension liabilities, without sufficient flexibility to meet market downturns causing the closure of many viable schemes. The State however moves in a fantasy world without any such restrictions, spending contributions as they are deducted and dependent on future taxation or contributions to meet liabilities with no serious planning. Even modest population projections show increases of 50% in the retired over the next 40 years in real terms. Recent figures released show the total liability of State and Public Sector pensions at £5 trillion, with the Government trying to avoid payment by increased retirement age and the abolition of the second pension. It is time to return to reality and take positive steps to meet this liability. All pensions need to work on a level playing field, with pension liability amounts returned as positive funds to members, although difficult, it is not impossible. Liability amount are overstated, probably due to the current low annuity rates being taken to estimate return and general pessimistic actuarial values. We can move back to reality by combining reality in the form of the new contributory scheme with a rebate of part of current working members NI contributions; or a modernising change of NI into two parts of pension contributions and work insurance, turning this effective tax back into NI for the benefit of those in work. This could involve age 25 to 44 initially building up to 65 over a 20 year period, the promissory note part could still be retained by the issue of State Pension bonds to cover existing pension liability or even the NI rebate. The majority of the UK live in the real world; have to make ends meet and stretch resources to do this, keeping their feet firmly on the ground. The Politicians, Financial Institutions, Think tanks and Social leaders appear to have floated off into this fantasy land. Is the recession real or is it self inflicted, is growth stagnant because of the stringent economies and cutbacks, the redundancies and services we apparently cannot afford?. We are spending beyond our means, but is this because we import food we can grow ourselves, or goods we do not need or could make. The balance of payment deficit is at its highest ever, is this not the real problem? Now that the Olympic fantasy is almost over, perhaps we could get back to the real world, find the solutions that work, forget the idealism and concentrate on the essential priorities of survival.