The State and Public Sector pension system will not survive the onslaught of the projected population increases, which will occur over the next twenty to forty years. those in work will not be able to afford the extra and unsustainable costs that the present unfunded “pay as you go” scheme entails.
With the retired population projected to double over this period, the National Insurance contributions will also need to double just to maintain the already poverty level State pension, the alternative is not worth thinking about.
The main cause of this population increase is due to an increase in flow across the 65 threshold, which arises from increased longevity in the under 65 population; if they all have their own personal pension fund adequate for all their retirement needs, the problem disappears.
This requires a change to a fully funded pension scheme, which although difficult is not impossible if carried out over a 20 year transition period, even with existing financial restraints. The main problem is the existing State pension liability and the time taken to build up sufficient pension funds, normally 40 years.
The benefits and advantages are enormous, particularly if combined with the new compulsory contributory scheme in a universal defined benefit scheme; the State pension would be abolished to be replaced by pension contributions either directly from NI contributions or a NI rebate.
To achieve a basic pension of 140 pw in real terms, would require contributions of £2,000 per year over 40 years and Fund growth/ income of 4%. The present total NI contributions represent 20% of average wage, requiring an 8% rebate to meet this minimum funded scheme level, some 40% of State NI income.
Individually therefore the new contributory scheme contribution of 4% plus 1% tax rebate, 3% Employer and 8% NI rebate, would give a fourfold gain on pension savings and a potential pension income of twice the basic level, some £14,000 per year, which would make pension saving attractive and worthwhile.
The large contributions would not be lost from the economy, but could be invested in the UK in infrastructure, business, housing, schools, hospitals or anything that would give a modest 4% return. If set up as an ongoing Fund through work and retirement, it would also not need to be repaid, just serviced.
The State could also see substantial gains, once the existing pension costs decline, with rebate linked to income at a 40 to 50% level, some £30 to £50bn would be released with freedom from any future liability.
The system would need to be set up outside State control within an independent Trust or mutual Pension Society in a well managed and accountable manner with group accountability. Pensions should be clearly linked to contributions made, with only limited wealth redistribution.
There is a tendency today to mix up welfare and earned benefits, the all grey society of the idealist dream and envy of those better off. If you work and save hard and are prudent, you should keep the results; you are entitled to take out what you put in or more if it grows and keep hard earned wages and savings.
Welfare and charity should be something completely separate, possibly a responsibility but not necessary a right and certainly not at the expense of someone else, we must also accept differentials but within moderation. Our present Society is strongly biased against the average population in work.
Existing pension liability is the biggest problem, the pension contributions have been taken and spent, leaving the debt behind to be met by current and future generations; it is a never ending circle that needs to be broken, but one that can be managed.
The same applies to the over 65 population expansion; increased life expectancy is not having the major impact projected; mortality rates and mortality are reducing, but mortality only accounts for 4% of the retired population, although some 83% of total mortality.
As a result there is a discrepancy between population decline and life expectancy; the total over 65 population for 2011declines to half its value in 9.5 years, whilst life expectancy is twice this. This means that at age 75 only 45% of those alive at 65 survive, which reduces to 23% by age 85.
At present there is no justification in delaying retirement based on increased life expectancy.
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