John’s Blog No. 145 – Pensions State

Of course the real problem is the State is in an unsustainable pension situation, is incapable of running pensions in a sensible and fair manner and is plugging holes in a rapidly collapsing Dyke. It needs to hand these over to existing independent bodies capable of running pension savings and meet its pension liabilities in a controlled manner. The State and Public Sector pensions, due to their nature, cannot give a good or fair return on the National Contributions made, because these contributions are not saved to accumulate and grow as in a normal funded scheme, but are spent immediately on the existing pensioners. This absurdity creates age dependency of the retired on those in work, instead of the self-sufficiency associated with each member building his own individual pension pot for his retirement. The position is set to get much worse, with pensioners projected to grow by 50% over the next 30 years, whilst those in work remain unchanged. Someone on the average wage of £500 per week, with their Employer will pay 20%, £100 in NI contributions per week, of which £80 is spent on pensions and £20 on the NHS; by 2041 the pension spend will have risen to £120, requiring NI to rise to £150. This is obviously not affordable by those in work or the State. The present measures of the single tier pension and delayed retirement will not meet this shortfall and are just tinkering with the problem, painting the cracks in a ceiling that is falling down. Change to a fully funded scheme to break the dependency chain is the only solution and the matter is extremely urgent. The existing State pension liability is the reason why this cannot be a simple or quick fix. This is now put at £3,200bn for the basic pension with a further £600bn for the second pension; although not treated as such, this is a National debt owed by the State for past NI contributions, which has been squandered by successive Governments. To put these large numbers into perspective, each person of working age 25 to 64 has a pension dependency debt of £125,000, effectively a mortgage on their future retirement, which hopefully the next generation will be able to also meet, when they retire themselves. This situation will get steadily worse as the retired population rapidly grows and this has led to pensioners being considered as a burden, yet they paid large NI contributions over their working lives in the belief that they were saving for their retirement future. It is the system which is wrong! The new workers pension (Nest) is effectively a back door method of increasing contributions to supplement the poverty level State pension. It is unfortunately based on the failing Defined Contribution Scheme, which loses money in real terms, being beset by poor performance, high charges and out-dated low Annuity returns. The unfunded Public Sector is in the same situation with liability, excluding Local Councils, being put at £854bn.Their position is in fact even worse as they have paid extra contributions to increase the State pension, but are in the same dependency situation, with the State increasing contributions to meet the problem. The real opportunity does however exist to combine all of these, with existing private schemes, in universal funded pension schemes, run independently from the State, with the conversion of State schemes to fully funded ones. This could be done by the transfer or rebate of NI contributions to these schemes over a managed transition period. Ideally if the State met its existing pension liabilities, this could occur tomorrow, but in the present economic situation the money for such a rebate, amounting to some £60bn per year, could not be readily found. It could be carried out in a virtually cost neutral manner over a transition period of 20 to 30 years. The benefits would be large, primarily securing the pension future in a self- sufficient manner; limiting rebate to a fixed and affordable proportion of NI income; giving a large stimulus to personal additional savings, if linked to these and the creation of large investment funds, which could be directed to UK business and infrastructure.

John’s Blog No. 144 – Pensions

Before proceeding further with consideration of NHS or other pensions, it is desirable to have a basic understanding of the nature of Pension savings and provision in a fully funded scheme. Pension are deemed to be too complex for even the experts to understand, but is this so? or just convenient for the Financial Institutions and the State to make it appear so. It was once the position with mortgages, savings, Insurance and recently energy bills and housekeeping, but all are becoming manageable. Pensions follow the same simple arithmetical rules as these, with the main complexity being the long time scale, some 40 years, in which the main objectives tend to get lost. It is essential to understand these basic rules to ensure value for money and final goals are met. They are personal savings, which should accumulate for a minimum of 30 to 40 years to build up a Fund that can be drawn upon through retirement as a pension income. If you save £1,000 per year for 40 years, this fund will accumulate to £40,000, if you then withdraw money from this Fund at say 6%, £2,400 per year, you would have made an overall annual factor gain of 2.4; £2,400 for every £1,000 saved. At any time, this Fund has a commercial value and can grow by suitable investment, it is also eroded by inflation and charges and these factors occur through both savings and retirement. If wages and hence contributions keep pace with inflation and the Fund grows by a similar amount, then the factors above apply in real spending power terms. Charges are more insidious, values of 1% are being quoted, but these are based on the whole fund and not just a commission on contributions and therefore can be quite substantial and unfair. Well managed Pension schemes have administrative costs a tenth of this of 0.1%, with investment costs twice this, most Investment trusts quote growth after costs. Growth has averaged 5% during the recession, with ten year or longer reaching twice this; at 5%, yield factors in real terms are almost twice the inflation minimum at 4.5. Pension payment levels in all major schemes, the State and annuities also take into account population survival. Life expectancy, at 20 years is the time taken for the population to halve and this allows payments to be made at much higher rates, one person’s death is someone else’s gain. Funds can therefore sustain inflation proofed payment levels of 6% with quite modest investment incomes at 4%. We therefore have some basic guidelines, rules and values on which to base pension yields and requirements on funded schemes, which although not applying to the unruly unfunded State schemes can indicate what is value for money. The minimum level, below which they lose money in real terms is 2.4 over 40 years. If your projected pension is not at this level, then the scheme is not performing and this ratio can be adjusted for shorter saving terms; so for every 10% of wage saved, you should see 24% of final average wage as a pension after 40 years. All but the best schemes fall well below this, with the norm for DC schemes at 1.8 due to poor outdated annuities. Consider NHS, assuming Employer is still at 7.3% (in doubt), Employee is now at 9% and SERPS is at 4.9%, (soon to be unfairly abolished), we have a total of 21.2% contributions, which should give an inflation gain of 50%. However deceptively the State pension is included to inflate final pension to these levels and SERPS is also included to inflate Employers contributions. This was illustrated in the State comment of the Fire Brigade pension strikes this week. A fireman earning £29,000 per year was quoted as receiving a pension at 60 of £19,000 per year, a large gold plated return which does not justify strike action. The Gad 2006 values showed average salary at £29,600 but average pension at £7,600 some 25%, it is difficult to understand the rapid rise since then, if it occured? However another report quoted this at £12,000 with the State pension bringing it up to £19,000, a completely different picture; using NI and Public Sector personal extra contributions of 21% or more, some £6,000 per year, this is a poor factor two loss-making return on lifetime savings. The action in any event was over the large reductions made for forced retirement at 50 or 55, due to inability to do the job. Combine this with rising contributions, particularly with the abolition of SERPS, the diminishing returns, uncertain retirement dates and the capability to carry out the work after 50 and beyond, one cannot understand the State’s reluctance to provide accurate and true information or to discuss the matter

John’s Blog No. 143 – Pensions –NHS 2

The State and Public Sector pensions are in crisis, due to the present unfunded “pay as you go” system, this outdated and archaic system in which today’s pensions are paid directly from the contributions of today’s working members would take top prize for idiocy, if it was not so serious. With anyone else it would be a criminal offence of misuse of funds and subject to a long prison term. All pay substantial NI contributions for a State pension, which has now reached poverty level and less than the welfare pension credit, being treated as a benefit largesse from the State (see previous blogs), ignoring the many years of contributions for a very poor return, which is scheduled to get worse. Public Sector Pensions should be a completely different matter, involving a supposedly defined benefit scheme in which contributions should accumulate and grow to give a secure outcome. These are personal savings taken from hard earned wages for the personal benefit of the member in their own pension pot Fund. Except they don’t exist, only as vague IOU’s from the State, which could be smoothed away all the time contribution income exceeded pension payments, however the rapidly rising over 65 population is upsetting this balance, known as the demographic change of an ageing population. For every pensioner there were over three people in work supporting them, income exceeded expenditure and successive Governments gleefully pocketed the difference. However this is changing reducing towards two to one creating a shortfall, which is being proclaimed as a taxpayer’s subsidy. Hence the current mis-information policy on gold plated pensions and attempts to cut back on pensions, increase contributions to balance the books on a biased and flawed system. It gets worse for the pensions of Civil Servants (2% contr’n); Armed Forces (nil) and Ministry personelle (unknown) are subsidised, whilst NHS, Teachers, Police and Fire are not, with Local Government run as a funded scheme. It would be less unfair if kept separate, but all are lumped together as losing money, including subsidies. In fact the main four are healthy and in surplus, but being penalised as the easy way out. The basic problem is that State budgeting can not allow for savings and deals only in income and expenditure and is therefore not suitable to run a pension scheme, which requires a Building Society/ Investment attitude, combine that with poor accounting and you get the present chaos. No real detailed information on Public Sector pensions has been released only overall in the general accounts which are incomplete and vague, the latest for these showed average Employer contributions at 7.3%, Employee at 6.5% and Social (SERPS) at 5.1%. The GAD 2006 report gave 208 projections, which combined with above give NHS contributions at Employer £3.12bn; Employee £2.78bn and SERPS at £2.18bn, giving a total of £8.08bn, pensions paid are at £4.5bn, giving an annual surplus of £3.58bn. It gave active member numbers at £1.6mn and retired £0.7mn, with average salary at £23,600 and pension at £6,000 (some 25%). The NHS is therefore in a strong position, in spite of the liability burden of existing pensions; although this may have increased, so have contributions, now at 9%, which should have improved the overall strength. Yet the position on NHS pensions is steadily getting worse, it is the strongest of the Public Sector pensions, but one giving the worst returns, with average pensions of only 25% of wage, requiring State pension to give a living income. These are simple housekeeping sums, possibly overwhelming, but showing a straightforward position which all the NHS representatives should be arguing with the Government, but don’t appear to be doing. If your home budgets showed a surplus of 40%, you would be laughing all the way to the Bank. It would be a very healthy funded scheme and could stand alone, even with the £4.5bn existing pension liability, which should be the main thrust for change, giving the pension scheme back to members in an independent managed Funded pension scheme and this will be considered next time.

John’s Blog No. 142 – Pensions –NHS

This week a diversion. John’s Adventures through the Looking Glass – (apologies to Lewis Carroll) The adventure began at midnight one Sunday night when I awoke with difficulties breathing; if you want a good time to be ill, then this must be one of the best. Things got worse and I had to dial the Emergency Services. Of course I did not dial the right magical numbers and was directed to a call service. Several minutes answering general questions, left me breathless and exhausted, transferred and repeated again to a nurse, who decided on an ambulance, with the right magic numbers, I should have started with 999. They arrived promptly, had me settled, checked and monitored, with oxygen for the one hour journey to A & E. My wife, who does not drive, was invited along, but declined due to no guarantee of getting home, and rang round the family to let them know. The ambulance men missed their turning or went through the wrong looking glass, for I found myself, not in the Nasty Horrid Service portrayed by the Knaves of media and journalism, but one of TLC. No long wait on arrival or in corridors, but straight into a cubicle, with nurse attention doing checks, tests, medication and tea, although the harassed doctor was busy dealing with more urgent cases, with final transfer to a ward where the adventure continued. It was an unreal, uncertain land, divorced from reality, which should have been depressing, except that it was full of cheerful people, who’s prime concern was your welfare and spared no effort to achieve it, from consultants, doctors, nurses, orderlies, even down to the cleaners. A colour guide to uniforms would have been useful to decide who was what, light blue dark blue, green, white, you name it and sort out consultants from doctors, nurses etc. etc.; some with name badges, some without, although the big chiefs did stand out. The dictatorial Queen and her army of bureaucrats were there in the background with volumes of rules and paperwork and an atmosphere of deference associated with human rights and the blame game. “Do you mind if I listen to your chest”; of course I mind that you asked, that is what I am here for, your medical expertise. Then of course we had the mad hatter’s tea party, if you changed wards or beds, someone else got your breakfast, which you had ordered in advance and the food ranged from excellent to mediocre, but generally good, although limited to what was felt nutritious and healthy. Stay in hospital is not a pleasant experience or one to book up for, but the nice hospitable service I found was not like the reported one, not quite 5 star hotel but getting close, with much more attention. Patients are well informed of their state and treatment, possibly overly so. One querulous patient almost reduced a young nurse to tears, with his insistence that she had not given him his medicine, when the careful records and physical checks showed otherwise, she was to blame for his memory failure, a growing attitude. The Wonderland of medical care and technical advance is starting to be taken for granted; only several years ago, going into hospital was a serious event with an uncertain outcome; now one expects to come out fit to run the marathon or will complain if this is not so. The Imperial Minister and his Management army need to be very careful in their cost cutting changes, to avoid damaging a very fragile and successful service; Pay freezes and unreasonable changes to terms and conditions, particularly pensions are undermining morale at all levels. The Ambulance man had his eagerly awaited retirement plans shattered, when he was told he could not retire on full pension until 67, he paid in fully and expected age 60 and why not, anyway how was he going to lift patients at that age, when he would probably need that service himself. It is crazy bureaucracy. Plain commonsense appears to have been lost altogether and needs to return urgently in all aspects of the NHS before it descends into the nasty horrid service in the other looking glass world. (NHS pensions next week)

John’s Blog No. 141 – Pensions –Pensioners 4

Of course pensions are made complex to confuse you, but all you need to know is the pension replacement or yield factor. For every £1,000 per year you save over 40 years, how many 1,000 will it yield in pension payments when you retire: DC schemes are quoted at a low 1.8, giving £1,800 pension per year in real terms. If your wages and contributions keep up with inflation and the Fund grows to also keep up, then over 40 years the Fund will build up to £40,000 in real terms, with payment drawdown at 6%, this gives £2,400 pension, a factor 2.4, which is the minimum in real terms, without losing money. Even with the worst 65+ population projections this is sustainable in a group scheme and is the Revenue recognised drawdown rate. Managed modestly your Fund should grow much faster, 5% is currently reported, with some rates even higher, this would double the expected returns. You should also have the choice of when you retire, if you have built up an adequate fund, this could be any time after 55, or if you prefer to work, delayed later, but your choice. Life expectancy is another confusing and vague area, it is generally assumed to be the time you have to live from that age, which is wrong. It is in fact the time taken for the numbers to halve from that age, you have an even chance of living that long or of dying any time between, at age 65 it is 18 to 20 years, you might live to 66 or 85, some of you will but it is an individual thing. Health and the quality of life is another asspect you may be alive, but can you do all the things you want to, currently we are healthier and more active at 65 than we have ever been and record numbers are surviving to 65, but the latest healthy living age is just under 69. Eight years from age 65 is the average time given as free of disability, it obviously depends on lifestyle, fitness and activity, but ageing inevitably takes effect some time and you do not have the ability or urge to do all the things you want to do or planned to do. Active life starts leaving you behind and the pace gets slower. This raises the question of retirement age, the mantra “live longer, work longer” is not proven or justified and it is criminal to force people to lose enjoyable retirement years to save small amounts of State pension money. It should be a matter of personal choice and whether you have contributed enough to support yourself. Some people have no life outside work and others little within it, bursting to do all the things that work, financial and family responsibility have deprived them of. A good retirement age is 55, children will be grown up and if you planned it well the mortgage will be gone and you will have had over 35 years of savings in the pension fund, including NI contributions. You will still be active and have the energy to do all that you want and of course you can still work part time to get the best of both worlds. In any event 65 is the latest time that people should be forced to work, but it should not be compulsory but a matter of choice. We need to face the prospect of life and death positively, if we are to get the best out of life in retirement, is our living style detrimental to longevity and how can we change it? How many of our relatives and friends are dead and why? What is our family inheritance in this respect or our present health and do we want to improve it? Alternatively do we just settle down to a relaxed living, fitting in what we can and enjoy life, our children, grand-children and more if we are lucky; doing just what we want to and catching up slowly on all the things we wanted to do, living life to the full. Pension savings accountability is an important aspect of this decision, there is none whatsoever in State schemes, in spite of large contributions in National Insurance and Public Sector pensions, there is no firm and binding relationship between what you pay in and get out. Benefits and rules are changed to suit the Public Purse, without reflecting what your savings should have accumulated or earned. It is run as a benefit welfare syatem of State largesse, with ever increasing contribution demand and decreasing and delayed payment, regardless of the individual. There are alleged rules relating years of service accumulation to percentage of average wage, but these are meaningless when the goal posts are constantly being shifted, without discussion or concern for the individual. It results from the lack of individual funds and final aims or objectives, if you know that you have a fund of say £100,000 which could give a pension of £6,000 per year, then you can decide if you can afford to live on it. This is the basis of all pension Funds except the State, your savings; your money; your decision and your choice and anything different would be treated as a criminal abuse of funds. Why should the State be different, they deduct the contributions from your wages whether as NI or other and have an obligation to protect and return it, when you need it, subject to obvious safeguards, without redistribution to others or themselves. The time for a major change in attitude, outlook and treatment of such individual savings is long overdue.

John’s Blog No. 140 – Pensions –Pensioners 3

Pension systems in general are not fair or reasonable or give good value for money, unless of course you are one of the lucky ones who have never paid in. The State goes to a lot of trouble and expense to ensure we do not get ripped off by shops, Banks, energy suppliers etc. but does not bother with pensions.

Yet it is the greatest rip off ever with the State as the biggest offender, where else can you pay out for over 40 years without any guarantee of getting anything in return and when you do it is less than you paid in. the amount is dependent on what your children or grandchildren can afford to pay in contributions or taxes.

The money you thought you were saving has already been spent, without even time to touch the ground, it has not been prudently put away to accumulate and grow into a good pension fund for your benefit, but has been lost in the system, grabbed by a greedy Exchequer for their own purposes.

Of course, it is supposed to be put into a protected fund, but all Government Departments only work year to year and are therefore are unable to even envisage savings, yet alone manage them.

Public Sector pensions are even worse, reputedly gold plated, they are nothing of the sort to the majority average member in the NHS, teaching, police or fire, who pay large extra contributions with poor return. Of course the elite part who pay little or no contributions are well off and subsidised by the other members, whose contributions rise to meet the unfair imposition.

Company and other private schemes are run well and give a good return, but their income is taxed by the State and they are being forced by stringent liability demands out of business or into defined contribution schemes. These only have the contributions defined but not the final outcome and lose money in real terms, the pension forecast declines rapidly as you approach retirement, with original projections meaningless.

Unfortunately, retirement when it comes cannot be delayed, you can’t sit on your pension Fund and wait for markets to recover, in fact annuity values can change dramatically within the time taken to have funds transferred and you can guarantee your existing provider will give you the worst deal.

Annuities are out-dated and not fit for purpose, any system that converts pension savings into a final guaranteed income has got to be stable and deliver the same return over a fixed period of time, otherwise they are pointless.  The basic investment in Gilts were supposed to have done this.

The money is there, good market or other investments are there, so what is the problem. The main one is how long will the member live and need to draw that pension? How much can you afford to pay out without the Fund dying before the member?

This is a straight forward calculation, comparing payment levels, population decline, possible investment returns in actual cost terms to find the Fund v payment solution in final real terms. In spite of pensioners living longer, a 4% income would allow a 6% to 8%payment in real terms, some twice existing levels.

Many Group schemes keep Fund continuity through work and retirement, which allows funds to work more effectively whilst minimising risk, giving greater returns due to the higher income achieved, with greater continuity of investment. Income can meet over two thirds of pension costs.

Therefore some form of defined benefit scheme, where minimum outcomes are guaranteed is essential to plan any form of reasonable retirement, to decide how much to save and for how long to get the final income you need and deserve. It is your money and should be made to work as hard as you do to earn it.

We need to return to the sane pension world, where contributions and Fund are allocated to you alone, working for your benefit, so that you retire with a pension Fund adequate to meet your retirement and elderly care needs, with firmer guarantees on what it will achieve over your working life.

John’s Blog No. 139 – Pensions –Pensioners 2

The question arises of whose money is it, it apparently no longer belongs to you; NI contributions are treated by the State as tax income; there is already a move in hand to do this, effectively to cancel the National Insurance Act. The single tier pension at or below welfare level is the first step towards this, All are equal, regardless.

Of course a basic rate of tax at 43% would be extremely popular! I don’t think, particularly with no firm return of pensions, unemployment benefit, job creation, etc, Why bother to work? The only ray of hope is the forthcoming general election, it would make a good platform for defeat.

There is a common attitude with many pension providers and administrators, who treat contributions as their money to be played with on the markets, but pass on the losses to members, which is the basis of defined contribution schemes. Annuities are even worse, are subject to daily market fluctuations, making it a gamble when you retire.

They were supposed to be tied to a stable Gilt and Bond base, with the State guaranteeing the outcome, but were then thrown into the market casino and no longer give good value for money or reflect the diligent years of saving. They are basically out dated and need replacing by a group scheme alive and active through work and retirement.

The basic problem is that pensions are no longer your personal entitlement, earned from many years of prudent saving, but a largesse to be dispensed unwillingly and begrudgingly, as from a charitable fund. No care is taken with your money, in fact it is no longer yours, but belongs to a faceless group or the Exchequer.

If you have the audacity to ask for a statement, you need to check it like Bank or Credit cards as mistakes are often made, the rules are changed without consultation or agreement and forward estimates decrease as retirement approaches, too late to correct.

The State is the worst offender, both in State and Public Sector pensions, you have no rights and should accept without question the “benefits” the State provides. The main aim is to reduce the amount paid out to prop up a failing system, which successive Governments have mismanaged and abused.

Careful plans, made over 40 years,  to retire at a given date with an adequate amount to enjoy the active years of retirement are thrown into confusion; the date is delayed by two years and the amount reduced sometimes halved. Pensions are an area where choice no longer exists, you are urged to choose doctor, hospital, schools etc. but not retirement; fairness has also gone out of the window, when you are better off on welfare.

Let us face it at 65, or is it 67, you are a liability; the system has squeezed out all the juice and wants to discard the shrivelled remains. Yet you are a force to be reckoned with and need to voice your displeasure, so they sit up and take note and improve the system.

Pensioners are now one sixth of Population and are the largest proportion who bother to go out and vote in an election, with the low turnout numbers that occur today, they are the majority. In spite of the low pensions, they are still a major spending power and with time on their hands they are an influence in the local community.

So sit up and take note and show a little respect to the old fogeys, who are not yet over the hills. In addition all in work, see their future in the pensioners and it is in their interest to see they get a good deal. In any case they earn their meagre State pension, paying substantial contributions.

A person in work, on the average wage of £500 pw, with their Employer pay 20% of that wage as NI, with 80% of the total income collected paying the State basic and second pensions. If you put that 16% into a good funded scheme you would expect to receive a pension of half that wage, not the measley fifth (20%) the State pays out.

The single tier pension announced and accepted by the experts as a great step forward, replaces all other State pension provision including the second pension and SERPs. In exchange you will get a large increase in your basic pension, bringing you up to the welfare Pension Credit level, without of course all the side benefits.

You know it makes sense, bringing all up to the democratic Socialist ideal of equality for all, regardless of whether you contribute or not; we all starve together and work hard to ensure it.

John’s Blog No. 138 – Pensions –Pensioners

Pensioners are treated as third rate citizens in the United Kingdom, which no longer appears united to them. They are a welfare liability, whose costs and care we can no longer afford, to be kept at near poverty levels, sometimes in conditions no better than the old workhouses.

There is at present a great “holier than thou” uproar about the mistreatment in hospitals, care homes etc., which is not representative of the many who look after the elderly, sick and needy, in hospitals, local councils, charities down to just neighbourly acts.

The real reasons for any poor treatment always come down to money and hence time, there is an obsession with cutting costs, we have mass production time and motion experts, supermarket and financial guru’s all trying to get a quart out of a pint pot.

This is particularly so in the Public Sector, where excellent service is expected for little or no cost; no one sits down and works out what the need is for a good service and costs it properly and then looks at what we can afford and the best allocation of resources.

They know the number of doctors, nurses and social workers required per patient, but then insist on making do with half the number, who they blame when things go wrong. We spend a fortune looking over our shoulder with expensive committees, reviews and enquiries to tell us what common sense should do.

The main blame for the attitude to pensioners must lie with the State and successive Governments, who have reduced what should have been a successful National Insurance contributory pension scheme to rubble, not meeting inflation increases and replacing them with welfare benefits until everything is now benefit.

Yet all their working life they paid their taxes and also substantial NI pension contributions for their retirement future. This money was not put aside to accumulate and grow, but squandered until the system degenerated into the money, as it is deducted,  paying today’s pension, with complete age dependency, now unsustainable.

Now those in work today can no longer afford to support the increasing number retired, even at the poverty levels now prevailing, with desperate measures being taken to prop up the system, making people work longer, means testing for basics, grabbing personal assets with envious eyes on those who have made provision for themselves, with extra pension contributions in personal schemes and creating envy.

Total National Insurance contributions for someone on the average wage of £500 per week amount to 20% of wages, the same as the basic tax rate; 80% of this money is spent on State pensions. If this 16%, some £80 per week were put into a well managed funded pension scheme it could after 40 years of work and saving yield a pension of some £250 to £320 per week, three times the current State basic pension.

The State has thrown away these advantages of prudent money management with the accumulation and growth of funds, it has also lost sight of the fact that contributions are individual personal savings to be respected and nurtured. In fact the current approach would be treated as an illegal act of fraud.

To be continued

John’s Blog No. 137 – Pensions –Energy

Pensioners are more dependent on energy than the majority of Society; they spend longer in the home, some housebound, get less exercise resulting in poor circulation and are more susceptible to cold. They  therefore use more heating and light, have temperatures higher, with a high energy consumption.

Their energy bills are higher and take a greater part of the income, which is often close to the poverty level. The soaring energy bills have therefore hit them the hardest and yet Offgen and the Government seem unable to control what is a vital part of our economy.

Trading results are just being reported for the recent cold winter and it is claimed that they make no money from supplying energy to the consumer and even suggest they are losing money by doing us the favour of doubling our energy bills. Meanwhile their exploration and generation arms make large profits.

This is the real problem with competition, if you are involved in producing the raw material, converting , distributing and finally delivering it to the consumer, you have a monopoly and can decide which is the best place to make your profits

Of course rising world energy prices are a bonus and a good reason to blame; nothing to do with you, while you charge the higher price and increase profits, salary and bonuses. Prices go steadily up, but fail to respond when oil and gas prices drop, a one way street.

The reason given is that contract prices are committed for many years ahead and are therefore slow to respond, all part of the speculative futures markets and when it is time to bring them down they have of course risen again, making it impossible to do anything.

Of course when the contract is with yourself, or an associated Company, you can agree anything you like on price, regardless of the real cost of the product. It costs no more to extract gas and oil than it did several years ago, in fact Technology has made it cheaper.

In spite of rising World demand, supply has kept pace, reserves are high and new sources, e.g shale gas have improved the situation, which is kept artificially high. We still have good North Sea reserves, in spite of squandering them when prices were low, yet although it belongs to us in the UK, we get no price benefits.

Of course high profits are needed to finance investment, yet we have an impending generation crisis due to old stock not being replaced, so where is the investment? The problem is private investment, which has become too private; the moral high ground has been replaced by greed and short term interests.

There is little long term planning or investment, or even common sense, if your business depends on energy generation, then you need to ensure that the capacity is there to ensure a future. The State shares a major part of the blame, they passed it all over, but not ensured the necessary controls and guidance to make it work.

The large shale gas reserves offer us a way out and of siting generation where it is needed, it can and should be exploited in a considerate and safe manner; the modern technology exists to do so but it needs a good PR job.

Green energy is another area, if it was not so expensive, it would be one big joke. The Chinese  generate more CO2 per second than we save by green energy each year, yet we are crippling ourselves trying to do it, both economically and individually.

Climate change is a World problem, we are putting an insulating blanket of CO2 and methane round the globe, which lets energy in but not out, yet alone our efforts are pitifully small and ineffective. Many are misguided, biomass and wood burning just releases stored CO2, which is best left captured.

We need to clean up our act, use less energy in our daily lives and embrace true green technology; the Severn Barrage could generate 6 to 10% of our energy needs, similar hydro-electric schemes could give more, all run without the doom and gloom merchants consequences.

Electricity is the key, Co2 emissions could be more readily controlled at source giving greener generation, a vacuum freight transport network could be cheaply installed, halving diesel use or more; rail electrification would be a priority must and if we forgot our obsession with speed, electric cars could take off.

Green does not have to be expensive but does require a change of attitude and lifestyle, many solutions are useless, how often do you see wind turbines rotating, they just sit there, with steadily reducing utilisation factors, now below 20%, other methods are just as bad and we pay for them in our energy bills.

We need energy but it should serve us and be free of profiteering and used wisely, it is currently becoming unaffordable to all consumers, returning us to the good old days of unheated houses and darkness. We should fully utilise our energy sources and use our ingenuity to make the dirty ones acceptable and clean.

John’s Blog No. 136 – Pensions

It was reported that there are over half a million migrants lost in the UK and that it will take some 40 years to track them down, that is almost one percent of the entire population. Yet life in the UK today is littered with identity debris.
When born I am issued with a unique birth certificate and number, as soon as I start work, I have a National Insurance number used for this and tax purposes, when I marry a marriage certificate and when I die a death certificate and number. Then of course there is passport, driving licence, NHS number, Council Tax, etc. etc..
In this modern technological age with instant communication, I can use Google or any search engine and get thousands of matches within seconds and yet the State seems unable to do these simple tasks to find out who is legally registered in the system.
In the absence of a National Identity card and number (too expensive to implement), then the National Insurance number is the key identity tag, it shows that someone is or has been contributing to the economy as a working member of Society, with a complete record of such contributions.
It is a unique active identity number which can be readily tracked and verified and then cancelled at death, it is regularly up-dated by Employers and the Tax Office and therefore ideal for identity checks, if the basic information was available on a search database.
Applications for work, benefit or any form of identity could be checked out without costly searches to confirm only one individual exists and the latest address, work details and legitimacy to work and live in the UK, what could be simpler and a quick and ready method of tracking individuals, without affecting their rights.
The database exists and could be instantly available for identity checks and a legal requirement for any employment, it could also be used to establish the right to earned benefits above poverty levels and final pension rights. The information is there and should be used, giving a quicker and simpler method of tracking legal citizens.
We seem loath to implement any sort of controls on migrants, legal or otherwise, we cannot deport terrorists or prevent mass entry or visitors who enter the country purely to exploit the welfare system or health service or even for criminal activities. They export money out of the country affecting trade balance and undermining the economy.
We are hidebound by human rights and EU regulations, which we obey meticulously at great legal and other costs, whilst the rest of Europe ignore such limitations, shipping illegals back or better still on to us, regardless. Next year we can expect another wave of new EU members without restriction and who we will support, whilst our own citizens suffer deprivation, homelessness or poverty or if in work doing more for less return.
If you go to the US, Australia or other major country, you need a visa and cannot stay longer than a visitor period; you need a limited time period work permit and often need residency status to get a permanent job and certainly to claim any benefit or health care, even if it is available.
Immigrants play an important part in our work force, but they need to be part of that work force, contributing to Society and if they stay for a longer time need to become British in outlook. We cannot afford welfare migrants; need to be tough about dealing with them and enforcing border controls, even if they are European in origin.

It is all about plain common sense, which appears to be lacking in European bureaucracy and even in our own. I am not a secular, Britain for the British type of person, but they do need to be given priority when scarce resources are concerned in housing, welfare, health and social care.

We appear to be increasingly governed by minority interests, whether it be big business, the anti everything brigade or the goody goody idealists. They should be firmly put in their place with the interests of the Country and its real citizens as the first priority.

John’s Blog No. 135 – NHS

The NHS is in crisis and approaching the point where it can no longer be afforded, so that the aim must be to reform the service to make it viable. It has become a world service with health tourism to the UK very attractive, which we, with our limited resources, cannot meet.

Of course it is only a small part of the cost, but why should visitors or immigrants not take out Health Insurance; we need to when we go abroad and this is mandatory with the US and other countries.

The NHS should return to being a true health service and not an accident and repair service; it should be restricted specifically to UK residents who are ill and who pay all the costs of the service. It is not an indulgence for self inflicted health problems or a charitable organisation free for all.

We all pay motor and home insurance; Business have transport and accident policies; risk pastimes take out insurance as do major events organisers and anyone liable to risk, so why should this Insurance  not meet its full obligations. Of course premiums may go up, but no-claims bonus could restrict this to claimants, but the basis is insurance against accidents.

The self indulgence of smoking, drink, drugs and obesity is another  major cost area, but charges could be related to Mandatory rehabilitation courses, with even a health tax on major suppliers of offending products. There is the question of affordability, but they find the money to by the stuff in the first place.

Normal health care at point of need should not be affected with NHS number or Insurance detail (passport for tourists) as required. Record of treatment will be necessary, but this is being done anyway and billing could be from Central Trust on these records. Private hospitals and business do this as routine.

There would be a need for a set of standard charges, agreed with Insurers for accident claims, but the overall cost should not be too high and is rechargeable. The main change would be one of attitude.

There will be some grey areas and also social ones like childbirth, IVF etc which should be on NHS, but generally the position is clear cut, normal health risks or external causes. Food poisoning is one area, where it is commercial it would be part of compensation, in the home it would be health risk.

There is a lot of money being made on accident claims and it is right that this should include treatment costs. In many ways this could be interpreted as privatisation, but it is only in the areas that are already privatised, of Insurance and compensation.

The main objective should be to give health care to UK residents who pay taxes to finance it, anything outside normal health consideration should be paid for at the event. It is difficult to assess how much this would save, but non-health treatment is currently a major part of NHS costs and should be paid for when provided.

It is only logical and sensible that such a separation should occur for natural health issues and those arising from choice and controllable events; in the majority of cases the insurance exists and therefore should meet its obligations in full.

The boundaries are well defined in general, with very few grey areas and the laws on insurance accepted for all parties and exploited by some; they just need to be applied by the Health service. Most A & E and Ambulance service costs relate to rechargeable events, as do long term hospital treatments, whereas GP’s are primarily concerned with basic health, as are most out-patient care.

It is probable that most accident treatment would revert to the private sector, apart from A & E, once it was charged for on insurance, relieving pressure on the NHS. Why should the State or taxpayer subsidise the Insurance Companies or individuals who behave carelessly or live dangerously.

There is a stark choice, we either see the NHS steadily decline under forced savings to an ineffective service, with the drift towards private care for those who can afford it, or remain the excellent NHS it can be , but limited to true health care, free at point of need.

The basic care would not change, but the funding basis would, to the benefit of all who use the service, whether due to ill health, accident or misfortune.

John’s Blog No. 134 – NHS

Two weeks ago, for only the second time in my life I was treated to the delights of an overnight stay in hospital. It was not by choice obviously but by illness, which overtook me at the convenient time of midnight on a Sunday

I woke with breathing difficulties, which got steadily worse until my wife and I decided to call the out of hours service, found the booklet, the number and no longer available reply, tried 111 and received another number to dial, then was connected.

Of course in a normal emergency one would expect to be asked symptoms and questions to decide urgency, but not at that stage personal details from someone having difficulty talking. On hold while a nurse was contacted and then in good call centre practise, started from scratch again.

It was decided on an ambulance, which arrived fairly quickly and then the medical excellence started; efficiently working through their check list of tests, they then decided on hospital and took me out to the ambulance made me comfortable and carried out more tests, ECG etc before deciding to drive off.

One of their concerns, during the 30 mile journey, was of another emergency as they were the only crew on duty, but luckily this did not occur. At emergency a rapid transfer occurred, with no sitting about in the Ambulance as widely reported, again a wide range of thorough tests and then a wait for a doctor to become available.

In a cubicle with curtains open and passing staff checking you were alright, then an emergency next door and the curtains were drawn and isolation began, this is my only crtiticism, the lack of contact and communication and having to call out several times as someone passed, when I needed attention.

Things had improved since my previous visit many years ago, but I was stuck by the complete contrast between medical staff and management. The staff were helpful, cheerful, efficient and overworked, patients were difficult, with the usually lack of communication skills of doctors and consultants, but one had the overall impression of things being haphazard and disorganised.

There was a routine but it clashed at times with doctors rounds, cleaners and maintenance staff came and went at their convenience with the usual long mop pushing the dirt from the doorway round the ward and out again, although there was a full clean the next day.

After a fitful sleep, had just dropped off when the 6.30am medical check started plus a cup of tea, water jugs were collected , taken away and not returned until half an hour later, there was a lot of hassle, breakfast, cleaners orderlies etc., which disturbed the peace.

Visiting hours were restricted, but there was not a lot of activity in the afternoon, so it could have been continuous from lunchtime. There were no night rounds with a complete dependence on the panic button.

One couldn’t help thinking of the good old matron days, experienced when visiting parents and everything seemed quiet and efficient, with little escaping her eagle eye. The care problems now arising result from this lack of this overview and the patient considerate manner exercised on the spot by the matron.

There is no-hands on management occurring, with time taken in balancing budgets, meeting targets, planning and trying to fit two pints into a pint pot, whilst dictating what happens in daily routine, staff levels etc. This is a formula for chaos which is appearing steadily in our NHS.

John’s Blog No. 133 – NI Pensions

Full Employment is the keystone for prosperity and personal satisfaction and is also the basis for secure retirement. Choice is the other factor and is just as important, both are missing from life in the UK today.

We are beset by rules and regulations, many of which are petty and unnecessary and many due to penny pinching policies to save money, without bothering to think them through or considering the future effects.

Pensions are at the top of the list, with policies being pushed through on the basis of unsound assumptions and forward projections, yet the quicksand foundations of the State Pension system are not even looked at, based on  “pay as you go” approach combined with the welfare equal pay for all.

If you are saving part of your hard earned wages for the whole of your working life , you have no wish to see it spent on someone else, if you wish to donate to charity you should have the choice, whether this is fuel or other  allowances or part of your pension entitlement.

Unfortunately Pension Funds are attractive pots of money waiting to be raided and pillaged and the worst offenders are the State, using the money to juggle their accounts. A good recent example was the Post Office Pension Scheme assets, seized by the Treasury early this year without member’s agreement.

They will now become part of the renowned Public Sector scheme, whose members are unsure of what they will get or when and which gives a poor return on the contributions paid. Yet their Accounts appeared sound but were judged on harsh liability terms, which the State does not apply to its own vast pension liability.

Again choice is the key factor, it was not allowed or even considered, the same attitude has been applied to retirement age for the State and Public Sector pensions. This is being increased to 67 with the intention to increase it to 70 on the assumption that we are all living longer.
But are we, there is little evidence to support this, it is used as an excuse to save money, a panic measure due to the arrival of the WWII baby boom approaching retirement and the projected increases in retired population. Yet the average age is currently given at 80, but that for good health it is under 69, so retiring at 70 give you a possible 10 years to enjoy it, all of which could be in poor health.
Our children and grand-children probably will not be so lucky, all the medical signs are that the present retiring generation could be the healthiest and luckiest ones, even many of these do not live to enjoy the benefits of their labours and savings, the numbers are likely to reduce.
The numbers in retirement are increasing faster than those in work, the so called dependency factor, this is at present over three in work to each retired and is projected to drop to two to one or even below this  It will be impossible for this situation to be sustained, combine it with the dependency of children, students and those incapable of work, you get an impossible situation, which even the best economic measures will not fix.
The only viable solution is self sufficiency and we have a few short years to achieve this before we go into meltdown. We need to return to the old fashioned idea of everyone looking after themselves, particularly once working age is reached, keeping dependency to a minimum.
This is not as impossible as it seems, the National Insurance contributions are large and their potential wasted; a person on the average wage of £500 pw and their Employer pay £5,200 per year. If this was put into a funded well managed pension scheme it would yield over 40 years a final real term pension of some £20,000 per year.
This is much greater than the present pension, with in fact 60% of the NI income would meet the present State pension spend and the effect on the unsubsidised Public Sector pensions are even greater.
We need to return to a fair society in which people have real choice and pension contributions are their personal savings run in a group system for efficiency, but giving a fair return on their savings accumulated and invested. Not a general benevolent society for all, although some wealth redistribution could be allowed if the overall fund is strong. The welfare problem is the State’s responsibility, who should ensure or create jobs.

John’s Blog No. 132 – Pensions – NI

The boring details given in previous blog on the basis of NI, only arises because it raises basic questions about Ni and State pensions and also indicates that the original intention was to set up a proper contributory pension scheme, which the present one is not and is descending steadily towards a universal welfare system.

The system needs to return to these original intentions and become a real contributory pension scheme, which is fully funded and gives returns related to contributions made by the members. Welfare should be from taxation and limited to ensure those receive it are not better off than those giving it.

This is basic common sense, together with the saying “charity begins at home”, although not against foreign aid, in many areas it does not seem to have advanced the well being of the population, only their leaders.

Contributory National Insurance should be exactly what it says, Insurance for those in work, in many cases this has been overtaken by events, medical care is now universal with insurance not needed (except abroad) and the only real areas remaining are pensions and unemployment benefit.

Both have been whittled away to a welfare benefit free for all, except of course for the mugs in work who pay the insurance. There appears to be a guilt complex in Politicians, pushed by the do-gooders to redistribute everyone else’s money to the “poor”.

A good example is the latest play on winter fuel allowance,  the rich don’t need it why should they get it regardless of whether they paid for it. This was introduced because the State pension did not keep up with living costs and supplementary payments were the cheapest way out.

Who are these rich anyway, they are anyone earning over £40-50,000 per year, our skilled tradesmen, professionals, your sons or daughters, in fact anyone who has shown any initiative to get on in life, work hard and make something of themselves.  The backbone of the Nation.

 They will pay some £8,000 per year in tax, £5,200 in NI with their Employer, more in some cases than the big businessmen, yet they get little return for this. It is becoming a sin to work and earn money, whilst the real sinners are those that envy their progress and position.

The time to get things back in perspective is well overdue, to clearly distinguish between welfare and earned benefits and give value for money. The unfair and unjust borderlines are already extending to child benefits, bus passes and will move soon to State Pensions.

The new single tier pension is already doing this, with the abolition of second pension and SERPS rebate, why should these people who have their large defined benefit pension need a pension from the State. Ignore the fact that they have paid substantial contributions plus NI to earn these prudent levels for elderly provision.

Let us move back to “you get what you pay for” attitude, if you don’t pay into the system you can’t draw out and ensure everyone has the chance to work. The Government has failed in its duty to do this, passing it over to business, yet failing to create the atmosphere in which it can work.

It is shedding jobs like mad in order supposedly to save money, but spends more in welfare and loses the tax revenue; the real cost of State employment is half or less of the Budget figures and when account is taken of redundancy payments, welfare administration etc, the final cost probably exceeds the original wage bill.

This is additional to the demoralising effect on the individual and the Country. Work and labour is an internal cost and should not be confused with the external cost of imports or spending money abroad, where it is small in comparison, a factor used in all the faster growing economies.

School leavers and those completing further study are the worst affected and many social problems result from this, we should introduce a National Community Service and fund apprenticeships, pay adults to stay in school and University, not charge them.

After graduation I completed National Service in the Air Force and never regretted it, learning a lot and maturing, it wasn’t the best years of my life but it was useful and I gained experience. I doubt whether it would be more costly than its welfare equivalent and certainly more productive.

Work for all should be the aim and the time for shedding jobs arises when labour starts becoming scarce, it is scandalous that well qualified students are dumped on the dole queue, when the nation needs their skills. If these are not adequate make sure the educational system ensures they are.

John’s Blog No. 130 Pensions – Nest 2

In order to justify DC systems it is proposed to offer investment choice, this would only appeal to a minority and tends to be expensive besides admin cost there is also the bid –offer difference where 5% is lost. This is wasteful, let the managers manage, the main concern is the final outcome.

Although the gains may be high, speculative investment does not give a sound base over a 40 year period, in any event with such a large age range, one can afford to take some risk at younger ages from 25 to 45 say and transfer internally as the members get older.

That is the big advantage of large group pension funds, there is always a steady flow of money in and investment transfer over a wide portfolio, ending up with virtually risk free at retirement yielding lower returns. It is a living dynamic enterprise , not a stodgy savings account or annual accounting chore.

The sums of money are large, if 15 million (75%) are members with an average wage of £20,000  we have contributions of £24bn per year, which over 40 years will build up to funds in excess of  £1,500 bn with investment income meeting the major part of pension payments.

Income at £24bn each year,  if invested in the UK, would make a major difference to the economy, business and  infrastructure, think of the number of affordable homes, schools, hospitals, care homes, leisure centres etc., besides transport, energy and general infrastructure. Major projects take many years, spreading cost.

 Wealth redistribution is another aspect, unlike the present State scheme, you should get a return linked to what you put in, it is  your money and pension savings and if you wish to give to charity, you should choose

As long as a good member distribution over the wage range is achieved, solution to low earners should be possible, but wage levels below £10,000 would need to be treated as welfare. In any case they would not be able to afford the contributions, which will be difficult at £10,000 amounting to £400 per year, £8 per week after tax relief.

In the absence of any major pension reform, making the best of the present position, Nest needs to be set on a good secure benefit level, with minimum guaranteed returns in order to attract the support necessary for a stable pension future for all in work.

There are at present too many of the working population with no pension provision outside of the State NI system, times have changed, you need to take care of your own pension provision to ensure a reasonable retirement lifestyle. It also needs to expand to include social care needs, which is  possible in a good  scheme.

There is also a need for pressure on Politicians and global business to look after the needs of the working population, who supply the money necessary to keep the Country going. Modern communication makes this easier and too many people give up, do not vote or make their voice heard getting the system they deserve but does not serve them.

Of course the real solution is a well thought out defined benefit scheme integrating State, Nest and Private schemes, outside of State control and without the unfair pay as you go system stifling State provision and the current NI scheme will be considered in the next blog.

John’s Blog No. 129 -Pensions

Unfortunately this was deleted in error and is therefore republished

This week we shall be realists and look at how pensions are rather than what they should be, although we always live in hope that common sense will prevail.

Returning to basics, we ask the question what is the minimum pension level and what do we need to save to achieve it, how long is a piece of string comes to mind, but we shall ignore that.

General figures of £10 to 12,000 per year have been put forward, some half of the average wage, with people above this managing comfortably; it is below this that the problem arises. However there is room for some wealth redistribution within the pension system, particularly if State pension is brought into the problem.

The new single tier pension effectively guarantees an income of £144 per week or £7,500 per year, which is at basic poverty level, the new worker pension scheme Nest is intended to bridge the gap.

Good defined benefit contribution schemes report 5% growth, even over the recession and have been  9%+ over a 25 year period. At 5%, final pension should be four times annual contributions over 40 years; taking this as a basis, we can arrive at the expected pension outcome.

The new worker pension scheme Nest has automatic enrolment with total contributions of 8% , made up of 4% member, 3% Employer and 1% tax relief, which over 40 years should yield a pension of 32%of wage in real terms of today’s prices..

An annual wage of £10,000 is probably the minimum viable entry level, higher if tax allowances reach this figure. Contributions would therefore be £800 per year giving a pension of £3,200 and a final pension of £10,700 with the State basic pension.

This rises at £20,000 to £6,400 +£7,500, giving £13,900 per year which is comfortably above the recommended levels and therefore a good pension income in real terms.

Currently there are some 20 million people in work but with no pension provision outside that of the State NI system, the new scheme is a back door method of increasing contributions to give better pension provision. It is in everyone’s interest to support the scheme, it is better than nothing and without major changes the State cannot afford more.

However the new scheme needs changing, it is based on defined contributions and outdated annuities and is not fit for purpose. Pension scheme need good firm foundations, DC schemes are building your fortress against pension poverty on shifting sands.

They  are unreliable, lose money in real terms and with the present annuity position give uncertain outcomes, which are liable to change; having saved diligently for forty years you find yourselves subject to market fluctuations outside your control and too late to make changes or wait for better times.

Pension management needs expertise outside the grasp or knowledge of ordinary people, they are the professionals and paid well to do their work effectively, so why should the risk be transferred to members, who do not have the experience to manage it.

There is a reluctance to guarantee outcomes, hence the aversion to the defined benefit schemes even though they are economically more efficient and being managed well elsewhere. Even avoiding this there are still major benefits in group schemes which run through both work and retirement.

Risk can also be reduced, the days of the fast buck are over and investment should be in the UK, where it is sorely needed and although returns are more modest it is still possible to get 4 to 6%or higher and average out at 5%, which can reduce to 4% for the retirement fund portion where the major fund accumulation has occurred, once the scheme has established

To be continued next week..

John’s Blog No. 131 – Pensions - NI

During a search on the web, a 2013 Parliamentary report on National Insurance was found, which gave the basis on which it was set up and the basic rules to be followed, which together with the latest DWP report on State pension expenditure made interesting reading.

In spite of the general understanding, NI contributions are required to be kept separate in a fund, whose use is strictly defined with any surplus protected. It would probably take an army of lawyers to find out whether this has been strictly adhered to.

It arises because of discussion and consideration being given to merge tax and NI to simplify administration, such a move could of course be political suicide, but the gnomes have not thought that far. Basic tax levels at 33%, with higher rate at 53% plus a 14% tax on Employers would not look very attractive.

These levels are only tolerated because National Insurance is linked to Pension provision and this is already being undermined by current proposals on a single tier pension, greater redistribution of NI wealth and delays in retirement age. The powers that be are already treading on tricky ground.

Rather than merge tax  and NI, which makes NI firmly a tax and unpalatable, why not separate Ni completely from the present tax and welfare system to make it fully work related to the original intention. Set up as an independent body or Trust for the benefit of members. 

Ni contributions are projected for 2013-14 at £107bn with £21bn to NHS and £86bn to pensions. There was no indication in the report of why NHS was involved or reference to work related benefits. Surplus has occurred since 1990, which amounted to £50.6 bn in 2009 but then dropped to £39bn because of the recession, due to investment in Gilts/ Bonds, that is borrowed by the Government and linked to market fluctuations.

The number receiving State pension, discussed in a previous blog, equal the total UK population, making it a universal welfare, in spite of the pretence of a Contributory system and the single tier pension makes even the final monetary return universal. The numbers do not make sense!

 We have a modern day “Roin Hood” situation, except the rich are replaced by the working middle class, who  themselves are now becoming the poor. Yet all agree that the only solution to present economic problems is to ensure work is available to all and restore the incentive to do so.

Welfare costs need to be reduced and universal work is one part, implementation of the failed European universal welfare system is another negative factor. Why should we make payments to anybody who has not contributed to the UK, we need to become more insular and look after ourselves, Europe can’t do it.

Social and citizen rights should prevail over human rights, all other major Countries do this, visas are short term unless residency can be proved or granted and this is strongly related to welfare, self sufficiency and being British.

The same attitude applies to National Insurance, it must be kept independent of the welfare system, some degree of wealth redistribution amongst members is needed as part of the Insurance aspect, but this is possible in a well run scheme.

Of course the existing mess has got to be sorted out first. The present system has led to a large pension liability, which overwhelms NI making it not viable. However the legislation apparently exists to run it as a separate entity, which needs to be done. The State has squandered the NI money and should help sort it out.

To be continued.

John’s Blog No. 128 Pensions

I downloaded the latest State pension figures for December 2012 from the DWP website, which made interesting, but not exciting reading and illustrated how far out of hand State pensions have become.

The total cost for pensions alone, before any welfare costs is now £79 billion for some 12.84 million pensioners; of these 1.29 million are females between 60 to 64 and 1.21 million are Britons living abroad, which also includes their dependent relatives.

Some of these are non UK Nationals and even include persons who draw dependent pensions from the UK and a second pension from their own Country; it is a nonsense state of affairs, particularly if they never lived here.

The UK resident remainder over 65, appears to equal the last total population count for the UK, in other words every pensioner in the UK is drawing State pension. This is contrary to the impression given by the NI contributory pension, where members have to meet a contributory number of years or pay extra NI contributions to qualify.

We are living in an imaginary never-never pension land, where what you believe you see is not actually there, it is already a universal State pension and the single tier proposals just reduce it to a single grey level for all; a Tory Government meeting full Socialist principles.

One can also realise the full cost saving penny pinching motives behind the change, when fully implemented the large rise in basic pension will result in real terms in a reduction in cost to £63bn, a saving of £16bn, which is a trick worthy of thee best magicians.

Such a saving, with the expected additional drop in welfare Pension Credit and other costs could fund the transition to a true defined benefit contributory pension scheme using NI contributions in the manner in which they were originally intended.

Over 20 years, this would create real savings to the State and meet the stated intention of rewarding those who work and save to ensure their own pension future. Your NI contributions would build up your pension fund to secure your retirement and even your potential care needs.

The benefits do not stop there, the effects of population increases would be met by such self sufficiency, without any dependency on those in work, who would not need to support you. Large investment funds would be generated to meet all our infrastructure needs and even the State would save money.

When combined with the new automatic workers pension scheme, which is necessary because the State has misused NI contributions, reducing State pensions to below the poverty level, all contributory members would receive a pension of at least half the average wage, the aim of most DB schemes.

Of course such a scheme would have to be expertly well managed and there are many examples of private schemes here and elsewhere who do just that, giving good returns at low costs. This is been discussed in previous blogs and over forty years pensions of four times annual contributions are possible in real terms.

This means that a saving spend of £20bn per year over forty years would meet pension costs of £80bn per year, much greater and real State savings than those presently envisaged, of course you could just halve present spend and double pensions to even £288 per week.

Everyone would be a winner!

John’s Blog No. 127 Pensions

The Queen’s speech held nothing new, what I found interesting was the Government’s attempt to sell the new State Pension with the emphasis on supporting those who work hard and support themselves.

The impression was given that the single tier pension was designed for those who make contributions, giving a fair return on such savings. I wonder if they have even read the proposals or even understand them or perhaps they think we are too stupid to bother or realise.

The facts are that these changes introduce a universal welfare benefit pension scheme at poverty level, regardless of whether you make contributions or not and you will be better off all round if you are one of the nots, as pension credit will make you better off.

No matter what you pay in or for how long, you will be no better off than the eligible welfare itinerant; you will lose out on the second pension and any pension for your wife, who will no longer inherit your pension if anything happens to you.

It therefore does not give a fair return or even any on the substantial NI contributions made by you or your employer, if you are one of the hard working people the Government claims to support. The eligible number of contributions years is meaningless, you get the same anyway!.

What we need is a proper pension scheme in which the NI contributions work hard for the benefit of the members, not someone who is already retired or about to, or even worse someone who has not paid in at all.

Yet changing the system to a more sensible rewarding scheme could benefit all, including the State, the present cost of £75bn, properly managed and invested, could halve the cost and double the payment benefit over a transition period to allow present liabilities to be met.

This is a theme which returns frequently in my blogs, but you don’t have to take my word, for a simple calculation on your computer, mobile phone or even old fashioned scrap of paper can confirm the results.

If you save £1,000 per year for 40 years, you will accumulate a fund of £40,000, if this money earns 5% per year over 40 years on the average amount of £20,000 it will grow by 100%, doubling the Fund to £80,000 when you retire.

This fund will support a payment of 6% per year, which is the drawdown level allowed by the revenue and also a level which can be sustained with even the highest life expectancy figures, that is survive as long as you do, giving an income of £4,800 per year, some £98 per week.

The single tier pension is at £144 per week, some £7,500 per year (currently £5,600), which would therefore require savings of £1,600 per year. On the average wage, the total NI contributions paid by you and your Employer are over three times this amount!!

So even if only a half of total NI contributions, just your part is put away, then you could expect an income of over £10,000 per year, 40% of the average wage, which would be in real current living costs if wages keep pace with inflation over the 40 years, which they have done in the past.

The investment return, growth figure of 5% is a reasonable safe figure, most pension funds have achieved this over the recent recession, many report 8 to 9% over 25 years and latest Investment fund figures for the past year show values twice this.

The State is therefore not looking after your NI contribution savings wisely or even carefully, in fact they do not even recognise it as your money in the first place and there are doubts that the new automatic contributory scheme will fare any better.

The need for a proper pension reform policy is well overdue, not one to suit the politicians, but one that meets the needs of its contributing savers as its first priority and gives a fair risk free return on the pension savings they make, so that they can retire with peace of mind.

John’s Blog No. 126– Pensions

The art of husbandry appears to be dead, nothing of course to do with marriage, but more a matter of utilising our resources fully and putting something away for a rainy day, now also known as forward planning and consideration of future needs.

Our ancestors did it, even the Egyptians stored their good harvests away for when the inevitable poor ones occurred, but we lurch from crisis to crisis, never learn and blame anyone else for what happens in the bad times.

There is no better example than pensions, we all know we are growing old and will need income and care as we become frail, but expect the State to take responsibility for us at that time.

Some two thirds of the working population make no personal provision for their own retirement future; to be fair, most thought they were doing so with their National Insurance contributions, but no one queried what the State was doing with their precious savings.

Neither did the State, it went into the universal Exchequer melting pot  to be lost for all time, resulting in the present “pay as you go” system, which has become a free for all welfare scheme, dependent on the earnings of those in work.

Present demographic changes are undermining this system, the number of pensioners and those on welfare, together with their needs are steadily rising, whilst the number of providers that is those in work remain the same or dropping.

This ratio, known as the dependency factor is changing rapidly, currently around 3 to 1 it is expected to drop to 2 to 1 over the next forty years and even reach 1 to1, with every person in work supporting a pensioner.

Even the time advantage is disappearing, you once worked forty to fifty years to support a pensioner who was expected to last half or even a third of that time. The result is a system which cannot be sustained and is grossly unfair with the apparent solution of all working until they die.

There is another way, which is the old one of husbandry and self sufficiency, each puts away enough to meet their retirement demands and needs, Even if the State wanted to, they will find themselves unable to do so and are in many ways responsible for the problem.

However the State could do a lot to help the situation, but will only do so if pushed hard by the general public. They could return NI contributions to a true pension scheme saving for the future by rebating part of this income to work hard, accumulate and grow.

Nest could become a full Defined Benefit Pension Scheme instead of a Loch monster, utilising all the major advantages of a group scheme running continuously through work and retirement, instead of an individual risk scheme.

The onerous pressures of levies, taxation and unrealistic liability requirements causing the demise of DB schemes could be reversed to promote their recovery. There is a growing awareness in the US of the major economic benefits of such schemes over DC and individual private ones.

Contributions to all existing schemes including State NI are currently more than adequate to meet all the needs and the growing numbers of UK pensioners. Out-dated annuities throw valuable Funds away at their peak for a return which is at least half that possible if they were to remain alive.

Just because their owner stops working, there is no logical reason why their Funds should, they have an earning potential and would fare better in a well managed group scheme and be more able to meet the changing needs of their member owners.