I continue on the theme of NHS again this week.
It was reported that the South East London NHS Trust is to be declared insolvent with debts of £150 million, mainly associated with the excessive costs of a PFI contract running at over one million pounds a week. This resulted from the building of new hospitals, which apparently they could not afford.
It followed a recent publication on PFI projects which makes grim reading, in which total costs are some four to five times the original building costs over a 20 to 30 year contract. Successive Governments have been mortgaging the taxpayer’s future on ill negotiated and unaffordable HP contracts.
If you buy a new house on a mortgage over a 30 year term, at current interest rates around 6%, you would expect to pay around twice the original cost, which would be balanced out in real terms by inflation increases and might even show a profit on house price rises.
Apparently if the Government were to buy that house, it would agree to interest rates three times the normal 6%, expensive maintenance contracts and large professional fees to manage the contract. In a new house, you would expect few maintenance costs and also structural / build guarantees, with just redecorating, minor repairs etc., which you would do yourself or get done when needed, but that is not how the State does it.
These PFI costs unfortunately have to come out of annual budgets, thus limiting the amount that can be spent on patients, teaching, police and fire. A breakdown of other costs in NHS Trusts were also reported, besides the high labour costs expected in a 24/7 work operation of which almost half goes back to the Treasury, there were also large external service and professional charges.
These suggest that there are much greater savings to be made in these areas than those from the present conflict on pensions and the demand for larger contributions, which pales into insignificance. The main problem on State pension costs arises from the increases in projected over 65 population.
The same problem was reported in the increasing elderly care costs, which are projected to swamp Local Council budgets, resulting in major reductions in services, which have already started.
There has been little serious study carried out on the over 65 population, the present panic and projected numbers arise from the reducing mortality rates and the current high population influx over the 65 threshold. These result from a combination of the post WW2 baby boom and the immigration flood from Commonwealth Counties following independence, all now retiring.
The over 65 population is projected to almost double over the next 40 years at a rate some five times faster than over the past 30 years; the population is increasing due to medical advances, smoking reduction and health awareness but there is no logical explanation for this sudden change.
In fact there is a wide variation in population projection figure ranging from 40% to 100% by 2051 for the over 65, actual figures for the past 30 years show 22% rise, whereas projections to 2041 are 80%; the 2011 Census results are therefore crucial in deciding trends and validity of forecasts.
After 65, mortality rates rise rapidly, increasing with age so that at age 85 to 90 it is some ten times the rate at 65, one therefore has to be very careful when using factor mortality reductions to estimate population as this can exaggerate the over 85 numbers, which from some of the figures appears to be happening.
Care cost projections arise directly from these figures, which therefore need justifying, the lower population estimates, some 30% over 40 years make all these problems manageable, without the doom and gloom. Even the higher projected rates however are readily manageable in a funded scheme, allowing payment rates to be sustained and annuity rates to be improved.
One wonders whether some of these figures are politically motivated in order to justify cost cutting measures, looking at the worst scenario to give greatest savings; if one accepts them the only sensible conclusion would be to abandon unfunded systems, which in any event would give a better more affordable system. The resulting investment funds could buy out PFI contracts, if feasible or fund future ones at better rates.
Friday 29 June 2012
Sunday 24 June 2012
John’s Blog No. 81 – Pensions - NHS
There is an alternative open to doctors and nurses in their dispute with the Government over their pensions and that is a breakaway pension scheme or to propose the privatisation of the existing scheme. On the State proposed changes, they would be better off and these exist within BUPA and other private schemes.
The Government is entrenched in its present proposals and its reaction to the strike action shows a degree of panic, with wild statements from the Health Secretary and the Prime Minister designed to promote envy and obtain Public antagonism against the alleged “gold plated schemes”.
Since my last blog, I have also been attempting to check the Health Secretary’s claims which do not make sense or add up and have sent an email requesting support figures. At best they appear misleading, at worst wrong and the nearest I can get is to assume the £84bn given is the total pension liability for doctors.
This is almost a third of the total NHS liability and 7% of the total Public Sector pension liability, which seems high and must be split between working and retired, at most £42bn to retired; to the £17bn doctors contribution must be added Employers and SERP’s rebate, bringing this up to the same £42bn.
Increasing doctor’s contribution from 8.5% to 14.5% will give the Treasury a £12bn profit, added to the annual existing £2bn plus the additional contributions from other staff. If all contributions were put away as personal savings and invested, then existing contributions could be halved for the same replacement pension values, with considerable savings to DoH, no population increase worries and considerable investment funds.
This suggests an abysmal failure to understand even the basics of contributory pension schemes or even basic mathematics within DoH or the Government, with a taxation based approach where contributions are discarded and facts distorted.
It would appear that the Government is not fit or capable of running a contributory pension scheme and the only real solution would be an Independent Pension Trust. Contributions from members SERPs and the State Employers would be paid directly to the Trust and at the present contribution level between 19 to 21% is more than adequate to meet existing pension agreements even with the worst over 65 population levels.
This could be set up as in the USA, or even under the BMA and SRN auspices, as a Super Trust and could possibly extend to include all NHS staff. The NHS is the strongest of all the Public Sector pension schemes, with the last OBR report giving a surplus of £2bn before any of the proposed changes and therefore in the best position for such a change, with major benefits to members and large savings to the State.
The withdrawal of labour is abhorrent to doctors and nurses and strikes are not popular, however the threat of withdrawal of contributions could have a much greater impact. The Government is completely dependent on contributions to meet the pension payments
It has been stated that existing terms will be honoured for the next ten years, those outside that period have nothing to lose by requesting a statement of their position either as a frozen pension or a lump sum transfer.
These could be collated by the BMA to establish the overall position, either for negotiation or the basis of an independent scheme, which could be established over the available ten year transition period. Studies show that this would be perfectly feasible, particularly if the existing pension burden is lost.
The State would find it difficult to find the substantial sums involved in the current liability if contributions ceased and there were major withdrawals from the scheme and some form of independent scheme would generally be regarded as fair and sensible. There is also the major question of the legality of the present “pay as you go” scheme, which clearly is a misuse of member’s contributions.
There is little evidence that the BMA has used these approaches or taken scheme legality action, also Private schemes must show adequate funds to meet liabilities, why shouldn’t the State?
There is another problem facing the Government in the NHS and that is the increasing dependency on agency doctors and nurses, their current approach will make it more attractive to leave the service, becoming self-employed or emigrating, the latter is already occurring with new doctors.
Faced with 14.5% contributions and working until age 68 and probably 70 and understaffed, working in the NHS directly would not be attractive, The use of agency staff is extremely expensive, unattractive , unreliable, and difficult to manage. It is therefore essential that working in the NHS is made worthwhile
Satisfactory pension provision is an important part of employment today; contributions must be treated as member’s personal savings, give good returns and be flexible with freedom of choice on amounts saved, retirement age, with member’s involvement in decisions on wealth redistribution, investment etc.
(Note I must apologise for an error in the last blog; PS pension liability should be £1200bn not £1800bn giving 4% return at £48bn (now corrected)).
The Government is entrenched in its present proposals and its reaction to the strike action shows a degree of panic, with wild statements from the Health Secretary and the Prime Minister designed to promote envy and obtain Public antagonism against the alleged “gold plated schemes”.
Since my last blog, I have also been attempting to check the Health Secretary’s claims which do not make sense or add up and have sent an email requesting support figures. At best they appear misleading, at worst wrong and the nearest I can get is to assume the £84bn given is the total pension liability for doctors.
This is almost a third of the total NHS liability and 7% of the total Public Sector pension liability, which seems high and must be split between working and retired, at most £42bn to retired; to the £17bn doctors contribution must be added Employers and SERP’s rebate, bringing this up to the same £42bn.
Increasing doctor’s contribution from 8.5% to 14.5% will give the Treasury a £12bn profit, added to the annual existing £2bn plus the additional contributions from other staff. If all contributions were put away as personal savings and invested, then existing contributions could be halved for the same replacement pension values, with considerable savings to DoH, no population increase worries and considerable investment funds.
This suggests an abysmal failure to understand even the basics of contributory pension schemes or even basic mathematics within DoH or the Government, with a taxation based approach where contributions are discarded and facts distorted.
It would appear that the Government is not fit or capable of running a contributory pension scheme and the only real solution would be an Independent Pension Trust. Contributions from members SERPs and the State Employers would be paid directly to the Trust and at the present contribution level between 19 to 21% is more than adequate to meet existing pension agreements even with the worst over 65 population levels.
This could be set up as in the USA, or even under the BMA and SRN auspices, as a Super Trust and could possibly extend to include all NHS staff. The NHS is the strongest of all the Public Sector pension schemes, with the last OBR report giving a surplus of £2bn before any of the proposed changes and therefore in the best position for such a change, with major benefits to members and large savings to the State.
The withdrawal of labour is abhorrent to doctors and nurses and strikes are not popular, however the threat of withdrawal of contributions could have a much greater impact. The Government is completely dependent on contributions to meet the pension payments
It has been stated that existing terms will be honoured for the next ten years, those outside that period have nothing to lose by requesting a statement of their position either as a frozen pension or a lump sum transfer.
These could be collated by the BMA to establish the overall position, either for negotiation or the basis of an independent scheme, which could be established over the available ten year transition period. Studies show that this would be perfectly feasible, particularly if the existing pension burden is lost.
The State would find it difficult to find the substantial sums involved in the current liability if contributions ceased and there were major withdrawals from the scheme and some form of independent scheme would generally be regarded as fair and sensible. There is also the major question of the legality of the present “pay as you go” scheme, which clearly is a misuse of member’s contributions.
There is little evidence that the BMA has used these approaches or taken scheme legality action, also Private schemes must show adequate funds to meet liabilities, why shouldn’t the State?
There is another problem facing the Government in the NHS and that is the increasing dependency on agency doctors and nurses, their current approach will make it more attractive to leave the service, becoming self-employed or emigrating, the latter is already occurring with new doctors.
Faced with 14.5% contributions and working until age 68 and probably 70 and understaffed, working in the NHS directly would not be attractive, The use of agency staff is extremely expensive, unattractive , unreliable, and difficult to manage. It is therefore essential that working in the NHS is made worthwhile
Satisfactory pension provision is an important part of employment today; contributions must be treated as member’s personal savings, give good returns and be flexible with freedom of choice on amounts saved, retirement age, with member’s involvement in decisions on wealth redistribution, investment etc.
(Note I must apologise for an error in the last blog; PS pension liability should be £1200bn not £1800bn giving 4% return at £48bn (now corrected)).
Friday 22 June 2012
John’s Blog No. 80b – Pensions – Comment 2
I was so upset and incensed by the reports and distorted statements made in the media on the doctor’s strike that I felt the need to make an extra comment blog, I have no personal involvement with the NHS except as a patient but do have a high regard and from my knowledge of pensions, know they are not treated fairly.
The one day strike by doctors is over with various claims being made on its success or lack of it, particularly by the Government which are irrelevant. Doctors and nurses are a dedicated service and it is not surprising that few took drastic action, what is important is that they felt the need to, resulting from Government failure.
What was more disturbing were the various comments and claims being made by the Government, particularly the Health Secretary, it was almost like the juvenile question time with point scoring and wild divisive accusations, whereas doctors comments were restrained . To quote the main ones stated on television and in the media (Daily Mail):-
“Andrew Lansley today attacked striking doctors, saying the pension deal they want would come at the expense of lower-paid NHS staff. The comments followed his revelation last night that pension contributions for doctors have cost the taxpayer £67billion.Doctors themselves have only paid £17billion towards their retirement. Mr Lansley revealed that the public were funding 80 per cent of doctors’ pensions, and the total cost of the pension pot of all working and retired doctors is a massive £83billion.”
There is no information available to justify these claims, all the figures available from Government sources and the OBR suggest the opposite with NHS in surplus. They could only have been designed to promote anger and envy. They show a complete lack of understanding of pensions which appears to be prevalent in the Government and such claims need to be justified by facts.
They need to make up their minds whether Public Sector Pensions are a pension scheme, a benefit, a tax or a charity (and for that matter also State Pensions). All contributions are linked to pay and as a result they would expect to draw pensions also linked to pay; it is now generally accepted that final salary schemes are subject to abuse, mainly due to rapid pay increases just before retirement.
This led to unfairness, but the biggest area is between the majority contributors and the Civil Service/ others who originally paid nothing, then increased in 2008 changes to 2% and in current proposals will still be subsidised. Higher paid doctors will pay 14.5% whilst those in the Civil service only 9%.
It is claimed to be the same percentage rise, but this does not make it fair. Doctor’s pay is given at £148,000 with a pension of £68,000 (not supported), at 14.5% this would give contributions of £21,460, which in a modest pension scheme should alone yield their pension over 40 years. In addition there are SERP’s rebate of some 5.1% and Employer contributions currently 7.3% , plus the additional years saving to age 68.
There is no published evidence to support the claim that doctors or NHS pensions cost the taxpayer, the scheme is in surplus by some £2bn annually; forward population projection suggest this could occur in the future but this is only due to the unfunded nature of the scheme.
There is no clear separation in State accounts for Employer’s contributions and NI or SERP’s in the Public Sector, they could in a distorted manner be treated as a cost to the Taxpayer but are in fact Employer’s costs. There is also a tendency to include the State pension as part of the scheme benefit.
The urgent need is for the unsubsidised pensions of NHS, Teachers, Police, Fire and Local Government to be taken outside State control and put into independent Super Trusts on a firm Pension footing and treated in the same manner as Private schemes as regards Funds, assets and liabilities, i.e. as fully funded schemes.
This would require the State to find those assets, whether they be in Property, Pension Bonds or the like; the PS liability is given at £1,200bn some of which is Civil Service etc.; at 4% return this would give £48bn cost per year, much greater than the latest pension cost figures of some £24bn.
Some compromise transition period would obviously be needed and existing pension liability and subsidised areas could be separated off. However this is in fact the taxpayer repaying money borrowed over a long period of time, part of the National debt.
There is a growing trend to consider the redistribution of wealth within Pension schemes and also to limit personal choice, mainly due to the failure to recognise them as personal savings. Pensions are not the vehicle for such charity, although it could be done in a limited way with member’s agreement.
The one day strike by doctors is over with various claims being made on its success or lack of it, particularly by the Government which are irrelevant. Doctors and nurses are a dedicated service and it is not surprising that few took drastic action, what is important is that they felt the need to, resulting from Government failure.
What was more disturbing were the various comments and claims being made by the Government, particularly the Health Secretary, it was almost like the juvenile question time with point scoring and wild divisive accusations, whereas doctors comments were restrained . To quote the main ones stated on television and in the media (Daily Mail):-
“Andrew Lansley today attacked striking doctors, saying the pension deal they want would come at the expense of lower-paid NHS staff. The comments followed his revelation last night that pension contributions for doctors have cost the taxpayer £67billion.Doctors themselves have only paid £17billion towards their retirement. Mr Lansley revealed that the public were funding 80 per cent of doctors’ pensions, and the total cost of the pension pot of all working and retired doctors is a massive £83billion.”
There is no information available to justify these claims, all the figures available from Government sources and the OBR suggest the opposite with NHS in surplus. They could only have been designed to promote anger and envy. They show a complete lack of understanding of pensions which appears to be prevalent in the Government and such claims need to be justified by facts.
They need to make up their minds whether Public Sector Pensions are a pension scheme, a benefit, a tax or a charity (and for that matter also State Pensions). All contributions are linked to pay and as a result they would expect to draw pensions also linked to pay; it is now generally accepted that final salary schemes are subject to abuse, mainly due to rapid pay increases just before retirement.
This led to unfairness, but the biggest area is between the majority contributors and the Civil Service/ others who originally paid nothing, then increased in 2008 changes to 2% and in current proposals will still be subsidised. Higher paid doctors will pay 14.5% whilst those in the Civil service only 9%.
It is claimed to be the same percentage rise, but this does not make it fair. Doctor’s pay is given at £148,000 with a pension of £68,000 (not supported), at 14.5% this would give contributions of £21,460, which in a modest pension scheme should alone yield their pension over 40 years. In addition there are SERP’s rebate of some 5.1% and Employer contributions currently 7.3% , plus the additional years saving to age 68.
There is no published evidence to support the claim that doctors or NHS pensions cost the taxpayer, the scheme is in surplus by some £2bn annually; forward population projection suggest this could occur in the future but this is only due to the unfunded nature of the scheme.
There is no clear separation in State accounts for Employer’s contributions and NI or SERP’s in the Public Sector, they could in a distorted manner be treated as a cost to the Taxpayer but are in fact Employer’s costs. There is also a tendency to include the State pension as part of the scheme benefit.
The urgent need is for the unsubsidised pensions of NHS, Teachers, Police, Fire and Local Government to be taken outside State control and put into independent Super Trusts on a firm Pension footing and treated in the same manner as Private schemes as regards Funds, assets and liabilities, i.e. as fully funded schemes.
This would require the State to find those assets, whether they be in Property, Pension Bonds or the like; the PS liability is given at £1,200bn some of which is Civil Service etc.; at 4% return this would give £48bn cost per year, much greater than the latest pension cost figures of some £24bn.
Some compromise transition period would obviously be needed and existing pension liability and subsidised areas could be separated off. However this is in fact the taxpayer repaying money borrowed over a long period of time, part of the National debt.
There is a growing trend to consider the redistribution of wealth within Pension schemes and also to limit personal choice, mainly due to the failure to recognise them as personal savings. Pensions are not the vehicle for such charity, although it could be done in a limited way with member’s agreement.
Thursday 21 June 2012
John’s Blog 80 – Pensions – NHS Comment
For the first time in 40 years, doctors are taking limited action, whilst ensuring patient safety, nurse are likely to take similar action. This alone speaks volumes for the incompetence of the Government in this matter, bulldozing through changes without adequate and fair consultation.
What sane business would demoralise its workforce so much, when it is trying to make major changes to working practises? To make matters worse it is trying to obtain popularity by creating envy with untrue “never had it so good” claims on their pension provision.
In fact the opposite is true, the present NHS Pension scheme gives poor value for the contributions paid, almost half of what should be possible and is badly, almost incompetently managed. It has a large State liability, without the Funds or money to back it up, only future promises which are constantly being changed and reduced.
In 2008, major changes were agreed and implemented; some three years later they are being changed just as drastically with increased contributions, reduced benefits and delayed retirement. There is no sense in the proposals or long term solution, they are only temporary panic measures.
The State pension ship is doomed unless it is navigated into calmer waters for a major refit or scrapped and replaced with a modern model, unfortunately like the Titanic it is being driven forward into the iceberg of increased over 65 longevity without anyone competent at the wheel.
There is panic over increased life expectancy in the retired and yet even the basic study is not being done, The population head count carried out fourteen months ago in the 2011 Census is still not available, yet it would give important information on the actual over 65 increases since the last count in 2001. No reasonable explanation has been given for the large projected increases.
Meanwhile member’s contribution savings are not put aside for their benefit but being spent illegally; in the NHS, the last OBR report showed contributions exceeding payments by £2bn with the Government pocketing the difference. Yet it could be readily changed to a more stable and sustainable fully Funded scheme to give stability and more rewarding sytsem .
The Health Minister quotes the highest paid doctors earning £148,000 and receiving £68,000 pension but they are paying large pension and NI contributions and getting less than a 50% of wage return. Average NHS pensions on the last government figures available showed a 25% return, much less than they would get in a good private scheme and also being told to work to age 68.
Teachers, Police and Fire are in a similar position and also dissatisfied, yet the rest of the Public Sector are subsidised, paying little contributions for similar benefits.
Logical thought, careful and considerate planning and an attitude change are needed to establish a fair and long term system; contributions and NI should be treated as personal savings not an Exchequer tax income, the money should be put aside and invested and managed wisely to give maximum benefits.
The problems of increased longevity in the elderly can be managed without panic or increases in contributions or taxation but the existing money needs to work and grow, not spent at source. It does not have to be lost to the system, just used differently and invested in the UK.
Pensions need to get back to basics and serve the purpose for which they were intended of long term savings giving a steady return through work and retirement, there is more than enough money in the system to meet all elderly needs and give freedom of choice on retirement, it just needs the will and determination to make it work
What sane business would demoralise its workforce so much, when it is trying to make major changes to working practises? To make matters worse it is trying to obtain popularity by creating envy with untrue “never had it so good” claims on their pension provision.
In fact the opposite is true, the present NHS Pension scheme gives poor value for the contributions paid, almost half of what should be possible and is badly, almost incompetently managed. It has a large State liability, without the Funds or money to back it up, only future promises which are constantly being changed and reduced.
In 2008, major changes were agreed and implemented; some three years later they are being changed just as drastically with increased contributions, reduced benefits and delayed retirement. There is no sense in the proposals or long term solution, they are only temporary panic measures.
The State pension ship is doomed unless it is navigated into calmer waters for a major refit or scrapped and replaced with a modern model, unfortunately like the Titanic it is being driven forward into the iceberg of increased over 65 longevity without anyone competent at the wheel.
There is panic over increased life expectancy in the retired and yet even the basic study is not being done, The population head count carried out fourteen months ago in the 2011 Census is still not available, yet it would give important information on the actual over 65 increases since the last count in 2001. No reasonable explanation has been given for the large projected increases.
Meanwhile member’s contribution savings are not put aside for their benefit but being spent illegally; in the NHS, the last OBR report showed contributions exceeding payments by £2bn with the Government pocketing the difference. Yet it could be readily changed to a more stable and sustainable fully Funded scheme to give stability and more rewarding sytsem .
The Health Minister quotes the highest paid doctors earning £148,000 and receiving £68,000 pension but they are paying large pension and NI contributions and getting less than a 50% of wage return. Average NHS pensions on the last government figures available showed a 25% return, much less than they would get in a good private scheme and also being told to work to age 68.
Teachers, Police and Fire are in a similar position and also dissatisfied, yet the rest of the Public Sector are subsidised, paying little contributions for similar benefits.
Logical thought, careful and considerate planning and an attitude change are needed to establish a fair and long term system; contributions and NI should be treated as personal savings not an Exchequer tax income, the money should be put aside and invested and managed wisely to give maximum benefits.
The problems of increased longevity in the elderly can be managed without panic or increases in contributions or taxation but the existing money needs to work and grow, not spent at source. It does not have to be lost to the system, just used differently and invested in the UK.
Pensions need to get back to basics and serve the purpose for which they were intended of long term savings giving a steady return through work and retirement, there is more than enough money in the system to meet all elderly needs and give freedom of choice on retirement, it just needs the will and determination to make it work
Thursday 14 June 2012
John’s Blog No.79 – Pensions – Investment Returns
Proposals are being made to control the extravagant claims made on investment returns to attract new business, with more realistic growth levels. The danger of course is that these lower levels will be taken as the norm with business as usual in speculative investment and the Industry pocketing the difference.
Anyone who has taken out a pension plan will have experienced the diminishing returns scenario, where what starts as an adequate saving for a given outcome, steadily reduces in projected value to become completely inadequate when it is too late to correct.
Complaint to the FSA gets the response that they have no control over Fund performance and a recent DWP report on private defined contribution schemes showed that they lost money in real terms, defeating the whole object of saving for retirement.
What is needed is for the Government, the Bank of England and the Financial Industry to get together and define realistic and affordable returns on the basic investment, separated entirely from speculative investment, to give benchmark levels that can be applied and enforced.
The aim should be to reduce the personal risk out of DC schemes to bring them closer to Defined Benefit ones, which is essential for any form of long term saving. One needs to know the firm outcome in forty years time, not an ill-defined meaningless promise.
There is also confusion over actual and real growth; performance is usually worked out and given in actual terms, whilst aims and requirements deal in real terms. This is quite reasonable as one wants to compare the value when one retires with your living conditions today. In rough terms one can just subtract the values.
There is need of a basic rethink on long term savings, the Industry is besotted with speculative investment with the fast buck mentality and unrealistic financial rewards. This combined with indiscriminate lending resulted in the property boom and collapse and the present banking and economic crisis.
Pensions Funds need a stable long term investment area with guaranteed results and offer great opportunities to create growth, employment and recovery in the present UK economy, with the potential for considerable fund expansion. Where else can you obtain a steady and regular source of investment funds guaranteed over a forty year period, which need not be repaid but only serviced at a modest rate.
One just needs to match the money to the investment, and there has never been a greater need in the UK economy for internal investment, the money is generated here and should be spent here, not in boosting Industry and jobs in the Far East or anywhere else overseas.
The opportunity and need exists in housing, schools, hospitals, Industry, transport and energy, which all require assessing on what is a reasonable and affordable return on investment; the PFI fiasco is a good example of what to avoid with its high operational costs.
At present contribution levels in a funded system, modest returns of 4 or 6% actual, some 1.5 and 3.5% real, can give acceptable pension levels with yield factors of 3.6 and 5.7 over 40 years in real terms.
There is a large contrast in returns from DC schemes, that fail to keep up with inflation and which all are being forced into, from the returns shown by the larger DB schemes, which even over the past five difficult years are showing growth of 5 to 6%. Investment returns over a 10 to 20 year period average 8% to 10% and 8% has also been achieved by some large pension schemes over 25 years.
There is also the need for urgent change in the poor and ever decreasing returns on annuities, which are destabilising pensions, some are now half of what they could afford to be even with the increasing life expectancy forecast.
Pensions and pensioners are an opportunity and not a burden, they need to be treated seriously and realistically, outside the present failed commercial system, as personal and long term savings giving stable and guaranteed returns during working life and retirement.
Anyone who has taken out a pension plan will have experienced the diminishing returns scenario, where what starts as an adequate saving for a given outcome, steadily reduces in projected value to become completely inadequate when it is too late to correct.
Complaint to the FSA gets the response that they have no control over Fund performance and a recent DWP report on private defined contribution schemes showed that they lost money in real terms, defeating the whole object of saving for retirement.
What is needed is for the Government, the Bank of England and the Financial Industry to get together and define realistic and affordable returns on the basic investment, separated entirely from speculative investment, to give benchmark levels that can be applied and enforced.
The aim should be to reduce the personal risk out of DC schemes to bring them closer to Defined Benefit ones, which is essential for any form of long term saving. One needs to know the firm outcome in forty years time, not an ill-defined meaningless promise.
There is also confusion over actual and real growth; performance is usually worked out and given in actual terms, whilst aims and requirements deal in real terms. This is quite reasonable as one wants to compare the value when one retires with your living conditions today. In rough terms one can just subtract the values.
There is need of a basic rethink on long term savings, the Industry is besotted with speculative investment with the fast buck mentality and unrealistic financial rewards. This combined with indiscriminate lending resulted in the property boom and collapse and the present banking and economic crisis.
Pensions Funds need a stable long term investment area with guaranteed results and offer great opportunities to create growth, employment and recovery in the present UK economy, with the potential for considerable fund expansion. Where else can you obtain a steady and regular source of investment funds guaranteed over a forty year period, which need not be repaid but only serviced at a modest rate.
One just needs to match the money to the investment, and there has never been a greater need in the UK economy for internal investment, the money is generated here and should be spent here, not in boosting Industry and jobs in the Far East or anywhere else overseas.
The opportunity and need exists in housing, schools, hospitals, Industry, transport and energy, which all require assessing on what is a reasonable and affordable return on investment; the PFI fiasco is a good example of what to avoid with its high operational costs.
At present contribution levels in a funded system, modest returns of 4 or 6% actual, some 1.5 and 3.5% real, can give acceptable pension levels with yield factors of 3.6 and 5.7 over 40 years in real terms.
There is a large contrast in returns from DC schemes, that fail to keep up with inflation and which all are being forced into, from the returns shown by the larger DB schemes, which even over the past five difficult years are showing growth of 5 to 6%. Investment returns over a 10 to 20 year period average 8% to 10% and 8% has also been achieved by some large pension schemes over 25 years.
There is also the need for urgent change in the poor and ever decreasing returns on annuities, which are destabilising pensions, some are now half of what they could afford to be even with the increasing life expectancy forecast.
Pensions and pensioners are an opportunity and not a burden, they need to be treated seriously and realistically, outside the present failed commercial system, as personal and long term savings giving stable and guaranteed returns during working life and retirement.
Monday 11 June 2012
John’s Blog No.78 – Pensions – Energy Costs
The rising energy costs are becoming a major part of everyone’s spend, particularly for pensioners, yet few understand the various tariffs and the bills themselves. We are all urged to shop around and save a fortune, but does this actually occur in practice or is it a case of the devil you know.
Many offer short term savings but then revert to a higher tariff, where you are worse off, you are better off trying to understand what you are paying for and argue with your present supplier for a better deal.
Energy is sold by the kilowatt hour, that is a normally single bar electric fire running for one hour or a 100 watt electric light bulb switched on for ten hours. Your electric meter measures this direct, whilst your gas meter measures the volume, which is converted to the energy output, the bill shows the current reading and subtracts this from the previous one to give the total used since the last bill.
Annual Energy cost is therefore made up of the unit cost per Kwh, the total unit used per year and a service charge for supply, as either a standard charge or its equivalent number of units at a higher rate. Most suppliers now give an annual statement of total units and cost with comparison to the previous year and payment review.
The cheapest method of buying energy is by direct debit on the best dual fuel tariff available, Tariffs are being simplified but are still a jungle. The best time to consider a change of supplier is at the annual statement, when all the facts are available to give a like to like comparison.
Like all things it is “buyers beware”, with claims of large savings which are seldom realised and change breaks the continuity of records; having received a quote, it is well worth asking your existing supplier to match it, which they often will do. One should insist that the quote is based on your latest consumption of your annual statement with standing charge separated from running costs and all discounts available; this should be in writing together with the price guarantee period, to allow later redress.
After transfer there are many things that can occur to lose the advantage of changing supplier; exaggerated savings claims; increases due to late tariff rise catch up; transfer to a higher standard tariff after the initial period and changes to the discount structure. It is no different to the honeymoon period of changing insurance, when premiums rise substantially causing one to change again.
One of the biggest areas to save money is in energy use; does your annual statement show a drop in consumption if not why? Little things add up to large savings; lights left on can build up, that porch light left on all night could cost £30 or more per year; things on standby; ovens and heaters doing nothing etc.
Heating is the biggest user and good insulation plus turning the heating thermostat down can give large savings. Energy saving bulbs are all much publicised and advances plus reduced costs make LED bulbs increasingly attractive at 20 times better than normal bulbs and never need changing. Many suppliers are giving away free power monitors which allow one to see power use and savings.
Direct Debit payment is the most economic method and attracts a discount of 5 to 6 %, this is the most effective way of managing budgets, but one needs to ensure it does not get out of hand. This can occur with six monthly billing and estimated bills, if these differ wildly from the actual meter readings, then they need to be submitted.
The annual statement and energy review sets the amount for the year ahead based on existing use and current tariff, which is worth spending time checking; if this is a major increase and the account is in credit, then it is worth querying. It is an advantage to the supplier to keep your account in credit.
Another way to reduce energy costs is to generate your own, until the advent of the FIT scheme in which suppliers pay you a good price, this was not worthwhile. Many home renewables do not work well and need expert advice, however if you have a southerly facing roof,.a simple and reliable system is Solar PV panels.
This is a good investment if you have spare savings or a pension lump sum and although varying with location can give a tax free income, inflation proofed and guaranteed for 25 years of between 7 to 8% return. Yield varies with location, but a known system in the North West facing south east of 3.7Kw is producing 2000Kwh per year and yielding an income of some £900, meeting a good part of energy bills.
Energy costs can be better controlled but require diligence and homework, however the real control needs concerted action by the Government and the regulator as many of the cost increases are artificial and arise from ineffective green policies.
Many offer short term savings but then revert to a higher tariff, where you are worse off, you are better off trying to understand what you are paying for and argue with your present supplier for a better deal.
Energy is sold by the kilowatt hour, that is a normally single bar electric fire running for one hour or a 100 watt electric light bulb switched on for ten hours. Your electric meter measures this direct, whilst your gas meter measures the volume, which is converted to the energy output, the bill shows the current reading and subtracts this from the previous one to give the total used since the last bill.
Annual Energy cost is therefore made up of the unit cost per Kwh, the total unit used per year and a service charge for supply, as either a standard charge or its equivalent number of units at a higher rate. Most suppliers now give an annual statement of total units and cost with comparison to the previous year and payment review.
The cheapest method of buying energy is by direct debit on the best dual fuel tariff available, Tariffs are being simplified but are still a jungle. The best time to consider a change of supplier is at the annual statement, when all the facts are available to give a like to like comparison.
Like all things it is “buyers beware”, with claims of large savings which are seldom realised and change breaks the continuity of records; having received a quote, it is well worth asking your existing supplier to match it, which they often will do. One should insist that the quote is based on your latest consumption of your annual statement with standing charge separated from running costs and all discounts available; this should be in writing together with the price guarantee period, to allow later redress.
After transfer there are many things that can occur to lose the advantage of changing supplier; exaggerated savings claims; increases due to late tariff rise catch up; transfer to a higher standard tariff after the initial period and changes to the discount structure. It is no different to the honeymoon period of changing insurance, when premiums rise substantially causing one to change again.
One of the biggest areas to save money is in energy use; does your annual statement show a drop in consumption if not why? Little things add up to large savings; lights left on can build up, that porch light left on all night could cost £30 or more per year; things on standby; ovens and heaters doing nothing etc.
Heating is the biggest user and good insulation plus turning the heating thermostat down can give large savings. Energy saving bulbs are all much publicised and advances plus reduced costs make LED bulbs increasingly attractive at 20 times better than normal bulbs and never need changing. Many suppliers are giving away free power monitors which allow one to see power use and savings.
Direct Debit payment is the most economic method and attracts a discount of 5 to 6 %, this is the most effective way of managing budgets, but one needs to ensure it does not get out of hand. This can occur with six monthly billing and estimated bills, if these differ wildly from the actual meter readings, then they need to be submitted.
The annual statement and energy review sets the amount for the year ahead based on existing use and current tariff, which is worth spending time checking; if this is a major increase and the account is in credit, then it is worth querying. It is an advantage to the supplier to keep your account in credit.
Another way to reduce energy costs is to generate your own, until the advent of the FIT scheme in which suppliers pay you a good price, this was not worthwhile. Many home renewables do not work well and need expert advice, however if you have a southerly facing roof,.a simple and reliable system is Solar PV panels.
This is a good investment if you have spare savings or a pension lump sum and although varying with location can give a tax free income, inflation proofed and guaranteed for 25 years of between 7 to 8% return. Yield varies with location, but a known system in the North West facing south east of 3.7Kw is producing 2000Kwh per year and yielding an income of some £900, meeting a good part of energy bills.
Energy costs can be better controlled but require diligence and homework, however the real control needs concerted action by the Government and the regulator as many of the cost increases are artificial and arise from ineffective green policies.
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