John’s Blog No. 121– Pensions

The real solution to the economic crisis is work and investment in the UK and self reliance, we should stop being dependant on other Countries, why should we need the French to build our power stations when our future economy and existence depends on it.

The latest is Air Search and Rescue is to be contracted out to an American company, who we will pay £1.8bn for the privilege, the Air Force have done a fine job, but because we can’t afford the best helicopters for the job, we are paying the Americans to supply them and do their work.

Let us hope that it does not follow the Olympic Games security fiasco, where the armed forces had to come in to sort it out, people’s lives are at risk. We are paying the servicemen anyway and it was good training, or are they going to be made redundant, including Prince William.

We do not appear to be capable of seeing the difference between internal spend, where the money circulates, creating work, goods, services and investment and overseas spend where it is lost and creates debt, increasing the reliance on other countries and becoming the beggar. Our overseas deficit is the largest ever!

We could create all the investment funds we need in the UK, by changes to and emphasis on pensions; all in work pay large National Insurance contribution, some 20% for someone on average wage. This money is now being wasted with little results.

The State pension is miserable and the lowest in Europe, yet the £75bn cost should give all members at least £10,000 per year, instead of the basic £5,600, resulting in at least a third not being accounted for, yet no one queries the figures, or the lost £20bn.

If this money was invested in the UK at a modest return, it would yield and allow pension spend of some £250bn, over three times the present levels. Such investment of £75bn per year is over 20 times what the government is talking of spending.

Think what that investment level would do to the economy in work, growth confidence and UK standing. The houses, schools, hospitals we desperately need; new transport and energy projects; replacing our worn out infrastructure and investment in our manufacturing and business.

We have the ideas, the scientific and engineering entrepreneurs but fail to deliver the goods, leaving others to grasp the opportunities we create, whilst we beg at the doors of the Banks.

Let us take up the initiative and advance in leadership, as our Victorian ancestors did.

We still have the brains, ability and capability to do it, with the majority hardworking and dedicated, we just need the leadership to get things going, sadly lacking in the UK today. Let’s stop the never ending party bickering and get on with it.

John’s Blog No. 120– Pensions

Statistics have recently been released showing the average age of the population at 79.9 years and the average age for good health at 68.7 years. This means that our life expectancy at 65 is 15 years, not the 20 to22 years, we are all being told incessantly, also we can expect on average only three and a half years of healthy living.

This contradicts all the hype on living longer so work longer, changes to retirement age just reduce the healthy time we can enjoy it or deny us it altogether, of course it saves the State money and gets extra tax and NI revenue.

We are all living longer, mainly from birth, which increases the chance of reaching 65, but after that medical effort is concentrating on improving quality rather than quantity and quite rightly so. There is little point in living to 90 if you don’t know you are.

 There is confusion between the increasing numbers reaching 65, that is the population flow and increased longevity. If the numbers double, then the numbers above 80 also double, you are not living longer just your chances of reaching 80 have  doubled.

Things like the Flu vaccine, better care, heating, and diet, plus physical and mental activity do reduce death rates, increasing the chances of living longer, but not to the extent we are led to believe and being forced to change our lifestyle to accommodate.

It should be a question of choice and adequate pension provision and planning, not the poverty scrimping at present being practised and not very effectively.

It is not just for pensioners that planning is lacking; the birth rate is at its highest level of some 800,00 births per year, yet we have just discovered that there are not enough primary school places, in fact a shortage of some 25%. It was only a few years ago that we were shutting schools, because of too few numbers of pupils and this is still happening.

Even squirrels store nuts away to survive the winter, perhaps we should elect them instead, they could not do any worse than our successive improvident counterparts.

Surprise, surprise, the Budget offered lots of goodies, which can’t be opened until just before the next general election, do they really believe that we are idiot enough not to realise this. It is the same with the blame game on the previous Government, repeated many times in the speech.

They have had three years to put things right and in spite of all the misery and hardship being experienced by the electorate, things have hardly changed. The budget deficiency has changed little and will not do so, growth is negligible and the Banks absorb all the money poured into them to cover their losses, without lending to improve matters.

In the past, the only way found to recover from a deep recession was to spend, spend, spend; it sounds daft but appears to work, providing you plan carefully, where to spend. We are obsessed with welfare and overwhelmed with its cost, it has got to be reduced, but not by starving its recipients, but in a positive manner.

Get people into work and promote growth, there is a lot needs doing in this Country in infrastructure alone, just replacing worn out Victorian excellence. The billions put into the Banks could have built affordable housing reducing the large housing benefit, which is money wasted and it would have given work to many on benefit and not paying taxes. To be continued.

John’s Blog No. 119– Pensions – Single Tier Pension 2

The demise of the State second pension and SERPS and the effective replacement of the basic pension with a universal welfare benefit pension at poverty level, leaves the majority of the hard working population with little alternative to increasing their retirement income.

If you are one of the 10% minority able to join a well managed funded Company defined benefit scheme, then take up the opportunity, even if it is the less attractive defined contribution scheme, although care has to be taken to ensure the funds are independent and not disappear with the Company.

Public Sector workers are in a difficult position, the unfunded nature and State attitude leads to increasing contributions, diminishing returns and later retirement, if you are over 40 then you probably have little choice but to grin and bear it. Below that if a good sound opportunity to opt out occurs, it needs serious consideration.

The new State scheme joins the existing defined contribution schemes to give second rate pension provision, which combined with the annuity collapse offers little guarantee of a good and secure outcome. Saving interest levels are well below inflation so that ISA’s would lose money in real terms.

Property prices are now too high to give a good reliable rental return, although there are still potential areas if you can buy at the right price; holiday caravans, chalets and lodges are still at low enough prices to offer a reasonable return. Flat complexes are sometimes available offering 6 to 8% return.

Any money available for pensions may be better spent on reducing expensive borrowing; mortgage still range around the 6% mark, credit cards around 18% and store cards up to 29%. These are all much higher levels than your money can earn in savings and therefore a more worthwhile return to pay off.

This comes down to managing your money effectively, which is not so difficult as people believe, paying energy and service bills on a direct debit budget plan, reduces cost and can be geared in to income in the monthly budget. Paying credit/ store card payment by direct debit on the due date reduces charges and also allows monthly borrowing at peak demand by using the card.

Many Building Societies have flexible mortgages or allow re-borrowing of extra payments, so paying off extra amounts reduces interest costs now and in the future, clearing the Capital amount faster. This then allows greater pension savings later, if returns improve or investment in building up a Capital Fund, possibly in property to give future income.

Such property investment could be the normal process of upgrading, with downsizing at retirement to release Capital and can offer great flexability in saving for pension provision.

There are growing number of small investment co-operatives, some Council sponsored to invest in Local Companies, which are reported to give 6% returns, quite adequate to build up a good pension fund. Many ways therefore exist to finance future pension provision and group schemes can reduce the hassle and risk.

The question therefore arises of how much do I need to save or accumulate in a fund. There appears at present to be little alternative to the forced labour camp of NI “contributions”, so one must accept the basic State pension as the starting point and hope it maintains its real term value of £7,500 per year income.

One needs to top this up by at least £5,000 per year to £12,500 and if a couple a similar amount to some £20,000 total. At a 5 to 6% payment or drawdown this requires a fund of £80 to £100,000, suggesting savings of  £1,000 to £1,400 per year actual or in kind.

This needs to be compared with the new worker’s pension scheme projected to yield a 1.8 replacement value from 8% contributions (4% member), on a £25,000 wage, £2,000 ( member at £1,000) saving this could give a £3,,600 pension, possibly similar but without the personal control, satisfaction or security.

Of course the real alternative is a strong lobby to obtain a fair pension return from NI contributions, which is proportional to the monies paid, or better still to rebate 50% to an independent provider to invest in a proper funded scheme, giving value for money. The whole mess needs sorting urgently.

John’s Blog No. 118– Pensions – Single Tier Pension

More details are emerging about the single tier pension proposals, with everyone extolling its virtues, the amount varying between £142 and £144 per week and qualifying weeks of service quoted at 35 possibly less with credits, making it available to more in work.

What is not being said, which is more significant is that this level is almost equal to the Pension Credit welfare benefit, currently at £142.70 per week and with other associated welfare benefits, still makes it larger than the  new single tier pension.

Why bother to work and pay National Insurance contributions for a State single tier pension, which will leave you worse off than someone who has not. In any event if you do not qualify for the full State pension, you will still be dependent on this better welfare benefit.

Wives, husbands or partners will no longer be able to claim on their partners contributions and transfers at death will not occur. The State second pension and SERPS rebate both disappear, giving those in work a double whammy if they also contribute to a private pension.

What is worse, the second pension, which is related to extra contributions paid above the minimum, often doubling pension amounts, will no longer be paid. This is the last remnant of the contributory scheme, which now becomes a universal welfare benefit, with the more you pay in the less you get out.

It is effectively the death of the State pension, so why keep up the pretence of a pension scheme at all, probably because the alternative could be political suicide, when questions are raised about the purpose of National Insurance, why it is so high and increasing and not ring fenced for contributors?

Its intention was what its name implies and replaced the many insurance schemes taken out by workers to protect themselves from unemployment, poor health, inability to work and for a retirement future. However the money was never put aside, and became a general income to pay pensions and welfare, with it all being classified as benefit.

Of course it all comes down to economic costs, the inevitable redistribution of wealth and the overdependence on those in work, who in any case do not need such benefits and can afford to make their own arrangements. The fact that this is not true is blatantly ignored, welfare is being capped at the average wage of £500 per week, amidst complaints from those on it, who are unable to live on £600 or more.

Someone in work on the average wage has to pay tax and NI, travel costs, child care, pensions, mortgages and all the other extras associated with looking after a home and family in an independent and self sufficient way.

His own and the Employer’s NI contributions amount to 20% of his wage, in a good pension scheme this would have yielded up to a two thirds of a final salary pension, instead of the 28% of the single tier one.

The State expenditure on pensioners amounts to £108bn, almost all the NI income, but this should  give over £10,000 per year for every one over 65, some £105bn, if you do the sums. Whilst those in work and fully paid up, now get the full State pension at £5,600. Where does the extra money go, it is not being saved.

If all were paid the single tier pension today the cost would be almost 30bn less than present spend, the savings aim of all of the budget deficit spending cuts misery in one fell swoop, alternatively the single tier pension could be set at £10,000 per year and still save money.

The whole thing does not make sense and the numbers do not add up, it all needs sorting out, are National Insurance  payments for Pension contributions and work insurance or just a welfare tax and can we afford it. If it became a tax, the basic rate would be 40% for someone on average wage, with higher rate approaching 60%!

It is time State spending and work provision was overhauled on a logical basis, taking into account, who pays the bill and should therefore come first, what we can afford, with minimum welfare levels below minimum wage, directed at those unable to work. Why should we support migrant welfare chasers when Britons are starving but eager to work, and they or their parents have paid their dues to Society.