Thursday 27 December 2012

John’s Blog No. 108 – Pensions – Benefit and Welfare

Policy proposals indicate that we are rapidly approaching a situation where everything will be means tested, including State pensions, there is an overriding obsession or guilt with poverty, much of which is brought on by State policy and this needs to be brought back into perspective.
There is increasing envy of the rich and desire to take away benefits which they can afford themselves, but these are not the super rich who are affected, but the normal hard working prudent people, who pay their taxes and dues and manage their monetary affairs. They have paid for these services and benefits and are entitled to them.
Everything is now called benefit; originally tax allowances took account of the extra costs of raising a family, essential for creating the new working population we all depend on. These were abolished and replaced by child and other allowances paid for by the taxes and NI of those in work.
These in part led to the breakdown in marriage, leading to increasing State dependency, which blurred the boundary between earned benefit and welfare and has moved into old age, with State pensions becoming a welfare benefit  for all; paying more to those who make no provision at all.
They are now being made to pay twice, through taxes and NI and then expected to make their own personal and family provision including contributory pension payments, if they also save and own their own house, the State look on these assets as available to pay for future services, such as care.
Poverty exists and needs welfare, but should be kept in hand and at an existence level. The new single tier pension of £140 pw, £7,280 per year is presumably at this level, if all over the age of 65 were paid this amount, then the present total pensioner costs of £108bn, including welfare would reduce to £90bn per year, or give all the 10.5 million a pension of £10,000 per year.
In fact the full basic pension is much less at £110 per week, £5,600 pa and many exist on half of this, hence the poverty in old age, the whole system is a mess. We should sort out what is the minimum living income for adults and children, decide if this is the poverty level and apply it to all as the maximum welfare benefit.
The living wage being discussed is at this level for part time workers on 20 hours pw but twice this for full time, giving a minimum level of pension from NI contributions and a comfortable level from additional contributions, both of these should be provided in a universal earned contribution scheme independent of the State.
Part of NI contributions should be repayed or rebated as contributions to the new scheme at the same rate and combined with the newly introduced contributory scheme of 8%, which would be some 40% of NI contributions from the average wage.
Although it would be difficult, due to the existing pension liability, it is economically possible for the State over a 20 year transition period and the savings and benefits would be extremely large to both State and individuals, once these occur the refund could increase to 50% to cover lower paid wealth redistribution and elderly care.
Current pensioner costs take up the whole of NI income and are projected to increase considerably with population changes, stabilising these down to half the income by fully utilising the savings advantages of a funded scheme would allow NI to return to its original purpose, supporting the unemployed, job creation etc.
The State could even afford to keep up contributions for unemployed members and it would also be more economic to make contributions for the permanent welfare population, it is all a question of using the money wisely. 

Thursday 20 December 2012

John’s Blog No. 107 – Pensions – Delayed Retirement 2

If pension provision was managed properly, there would be no need to worry about when to retire, it would be a matter of personal choice and provision. If you wish to put a little more away and manage your affairs to retire at 55, you should be allowed to do so, if you want and are fit to continue to work until 70 or beyond, you should do so.
The dependence on State largesse, even though you may have earned it, is the only reason for a fixed retirement age and the abrupt cessation of work, the State should not be involved. Whether it is contributions through NI, the new compulsory scheme or privately, it is your money and should be put away in your name for your benefit.
The management or control by external bodies as group funds do not affect or conflict with this principle, even the State could and should have done it, but are incapable by their basic nature of doing so. They should therefore put it into more capable hands with adequate safeguards and controls.
When you retire is also dependent on how long you are likely to live once you do retire, it is a little like how long is a length of string and dependent on heredity factors, lifestyle, interests and what you do with your time. How long did your parents or grandparents live, is there enough time to do all you want to, for travel or hobbies, if so you will wonder how you found time to work and probably live long enough to do them all.
Life expectancy is derived from Life Tables which track 100,000 individuals from birth to age 100, taking into account deaths and mortality rates and is the time from a given age for the number to halve, that is an even chance of living that long. It is a theoretical value and does not necessarily reflect what is actually happening.
Population figures are obtained by Census counts every ten years, with estimated figures derived annually from births, deaths and recently migration information, they are a count of actual figures in that year and when things are changing slowly Life tables and population figures should agree.
However we are in a period of rapid change and increased longevity is mainly affecting the under 64 population, increasing the flow over the 65 threshold resulting in the major part of the growing population increases in the over 65’s. Mortality rates also increase rapidly after 65 by a factor ten at 85 and in 2010 deaths averaged 1 in 500 from 0 to 64  but 1 in 25 over 65.
This could change just as rapidly the other way if all the advances of the past years were thrown away in our present suicidal life styles of smoking (now reducing), drink and drugs, dangerous driving and now increasing obesity, where even under fives are affected.
Once we thought nothing of walking everywhere, to school, shops and parks, now it is nip in the car and get annoyed if you can’t park by the door, we are couch potatoes, watching TV; on the phone and computer; video games; but no real games or exercise and we munch continuously.
We are already straining our health and local services and all the indications are that this will reduce life expectancy unless pressure is relieved. For pensioners this could be done simply by extending pension provision to include elderly care, there is surplus available in contributions if managed properly.
There is an urgent need to get back to a sensible state of affairs, both by the individual and the State, this may in many ways be more insular in approach, but do we want to be an all grey society, where there is no incentive to do anything, or do we want to retain out individuality.
This will inevitably result in differences in living standards, but we need to clearly separate welfare from earned, if you contribute to Society you should be treated differently to those who don’t, whether they be immigrants, vagrants, criminals or those fallen on hard times. Of course this needs to be treated with compassion.
Welfare needs to be contained within fair, reasonable and affordable limits, with greater consideration given to the provider's needs and not just as an unlimited source of money and envy.  

Thursday 13 December 2012

John’s Blog No. 106 – Pensions – Delayed Retirement

The State is now well advanced in plans to delay retirement by increasing the eligible age for State pensions, becoming fully effective by 2020 and letters have been sent out to this effect, with forward proposals to raise this to age 70 or beyond and link it to the vague but increasing life expectancy figures.
The main reason given to justify the action is the mantra “live longer, work longer” repeated by all concerned, yet there is little evidence for this.  Population studies shows this is an imprecise value which does not reflect what is really  happening, actual population life expectancy at 65 is closer to 10 years and health data shows 8 years.
The policy appears based on economic grounds rather than social and common sense considerations, yet increasing retirement from age 65 to 66 gives a current one off annual saving of £3bn, small compared to total pensioner costs.
The larger more cynical effect arises from those who will never retire; the over 70 population is currently 7.4 million, which means that some  30% over 3 million will have no retirement at all, a current saving in real terms of £32bn increasing with population and the possible retirement age beyond 70.
The real saving occurs by denying retirement to almost a third of the over 65 population, which has not been aired, discussed or apparently considered, yet you have a three to one chance of being one of those losers.
However the majority have made substantial NI contributions for over 40 years, with no funds to pass on to relatives only a possible State promise to support their direct dependents, not legally confirmed. This is a similar promise made to young girls who at age 16 joined the scheme after 1970; that they could retire at 60, after paying for 40 years and have now been told it is 66. Is this a contributory Pension scheme or a game of chance?
This is all part of the distorted attitude to State pensions and NI and the failure to treat them as your money, personal savings / insurance against your future, not a kitty to pay all and sundry, whether they pay in or not, which favours the “nots”, like the rest of welfare.
Of course, if it was treated as a contributory pension scheme in a similar manner to private schemes, none of this could happen, the State would not let it for a start and would insist on adequate funds to meet pension liabilities. So how does it?; Parliament makes the laws and rules, which in our democracy are supposed to be fair, equitable and universal, so why can the Exchequer or Government ignore or change them?
The irony is that if State pensions were run in a true contributory manner, none of the problems would arise; if invested and allowed to grow the present large contribution amounts would meet all foreseeable pensioner needs with at least half the money to spare and give all the investment funds the UK needs for growth and prosperity.
The problem is that everyone is so busy running around plugging holes in leaking economic dykes, that they can’t see the wood for the trees or even think straight and sensibly.
We are living longer, but most of the impact has occurred in the under 65’s, where quite rightly the medical and social care has been concentrated. Even just thirty years ago, out of every 100 male births only 74 would reach retirement at age 65, now it is 85 , females are higher at 91 and this longevity penetration is moving closer to age 70.
However reaching 100 is still a one off event, so that the 85 will not survive the next 35 years, although most people do not like to think about it, 85% of the population die in this last short period; if you look at the population decline from age 65 it is very rapid and has hardly changed in the past 30 years or in projections for the next 20 to 40 years.
State and group pension costs and even annuities are determined by this decline and the associated annual costs. These show that out of every 100 reaching 65 only 47 survive to age 75 and 14 to age 85 and therefore differ greatly from the life expectancy results, which give an individual an even chance of living to 85.
The reason is that there has been no major medical breakthrough in anti- ageing drugs, the much sought after elixir of life has not been found and the appalling elderly care is only just receiving attention. It is unlikely that a cure for old age exists, the best one can do is keep physically and mentally active as long as possible and avoid extremes of cold and nutrition, eat well, keep warm and socialise!
What this all boils down to is that retirement is special but limited, needs to be enjoyed and sustained as long as possible and State restriction by delaying the start is not justified from the evidence available and should be resisted.

Friday 7 December 2012

John’s Blog No. 105 – Pensions – Your Money 2

Therre were two events this week that emphasised the general failure to recognise that NI contributions are your money and should be treated as such and as a commons sense approach to present problems.
The Autumn statement was the expected non-event of doom and gloom, with little major effort to promote growth and the economy, some release for investment in infrastructure, pinched from other budgets, but nothing like the amounts available a bold approach to pensions would create.
State basic pension increases of 2.5%, although welcome do little to redress the balance of years of neglect or the fact that even the full pension is over £30 per week less than pension credit and nothing said about S2R, which rose last year but not previously.
The inflation rates for pensioners are much higher than the published rates, they buy few i-phones, computer games or fashion clothes, etc. and are hit harder by energy and food increases. The whole position needs to move away from welfare and charity hand outs separating true welfare from benefits earned by hard work and payment over many years of Taxes and National Insurance, to real entitlements.
More worrying was a report from the Institute of Fiscal Studies discussing a unified simplified tax system merging Income tax and National Insurance contributions as a single tax, paradoxically, they also refer to the Contributory State pension system, but fail to say how this would work.
Although this is the way the Exchequer is trying to move, it would throw away years of endeavour to establish a welfare state for those in work; at the time this was brought in our society was work based and centred, we had a strong sense of paying our way and earning our keep, now sadly missing in many elements of our Society.
National Insurance needs to return to just that; insurance and pension contributions for those in work related to the amount paid in with only essential minimum redistribution of wealth, your money intended for your use. If the State cannot manage such contributions in this manner, then it needs to be removed to somebody who can.
The amounts are large, for someone on the average wage of £500 pw, the combined NI amounts to 20% of wage; if unified it would give a basic tax rate of 40% rising to 60 and 70% plus VAT, fuel duty etc. etc.  etc. Again nobody has thought it through, imagine this as the mainstay of the next election manifesto, very popular in opposition.
Other autumn statement proposals hit those in work, limiting benefit rises to 1%, many of which were again part of original NI benefits, of course the wealthy had tax relief reduced on pension contributions, now £40,000 pa with £1.25 million maximum. At 6% return this would limit the pension to £750,000 per year, we should all be that lucky.
A more realistic level would be the 40% tax level, which with allowances starts at over £50,000, with average contributions at 20% of £10,000 pa, this would still give appreciable relief at 20% and a much fairer system. If you are on average wage you would only get half of this and the revenue savings could allow misery relief elsewhere.
 The whole of NI income raised is spent on Pensioners, currently £108bn, with a further additional £54bn on working age benefits; if transition to a fully funded pension scheme was made, expenditure could be contained within 50% of income in a more secure pension regime free of demographic and age dependency effects.
The resultant funds created would meet all the projected cost rises and release equivalent funds for investment in the UK, at levels not seen since the Industrial revolution, and secure our future growth and economic prosperity.
The £54bn released would meet the working age benefit bill, but should be targeted at those in work and ensuring work for those unfortunate unemployed, a labour waste we cannot afford!
That could fulfil my aims on pensions and work, but will only occur if the voting population demand it. Your money, your choice, your pension.