Friday 12 April 2013

John’s Blog No. 123– Pensions – State 2

State Pensions are the last of any return from the substantial National Insurance contributions made by the 30 million in work, over their whole working life. Once the single tier Pension is introduced at the proposed poverty level, these contributions become meaningless.
The matter becomes worse when this earned pension is viewed and treated as a welfare benefit and the large income received is ignored. This is the present position, with the introduction of the single tier pension being reminiscent of the best misinformation techniques of WWII.
The basic Sate pension will be increased by almost a third to £144 per week in 2016, but it will still be lagging behind the welfare pension credit, now at £142.70 per week, which is available to all. The hard earned second pension, which gave some additional return and living wage income, with SERPS is being abolished and the pension will not be transferable to dependents from an early death.
The majority of those in work are now faced with paying extra contributions, which they can ill afford or facing a retirement future in destitution, even those with such extra provision will find that the new welfare State pension will become means tested and be denied it.
Yet we are facing a demographic crisis, the older population is increasing rapidly but also becoming more dependent on a working population unable to meet the demand as the ratio of those in work to those retired reduces.
The latest DWP Budget figures clearly show this, which is the main reason for such drastic cuts in pension costs, delays in retirement age and the wrongful portraying of State pensions as welfare payments. The real reason for the crisis is however the unfunded nature of the system, contributions have not been saved to grow and meet the original insurance aims.
A person on the average wage, now at £500 per week, together with their employer, pay National Insurance contributions of £100 per week, some 20% of wage, if this money were put away and earned enough to keep pace with inflation, it would after 40 years give a pension of £240 per week.
Many in the maligned Defined Benefit Pension schemes put similar amounts away and receive pension levels up to twice this in a good scheme. If only half the NI income was put away in this manner it would give a final guaranteed pension of 48% of average wage in real spending terms.
Such a change is possible in a controlled manner over a period of 20 years, it is not easy in view of the existing pension burden, but it can be done. The present spend figures do not add up, on State Pension alone they amount to almost £200 per week per head, and overall pensioner spend is similar. This is already well over the full basic State pension of £110 per week.
This is where the effort to make budget savings should be made and directed into creating a fully funded sustainable pension scheme, in which each person in work is self sufficient with a pension pot adequate for the retirement needs of income and elderly care.
Of course, the present State administration would be, by nature, unable to manage such a scheme effectively, but it could be put into other capable hands that can and run on the basis of a NI refund or rebate paid into a sound DB scheme.
In any event, the whole Financial Industry, like the Banks, need a major refit, or overhaul. There appears to be no overall accounting liability and the present Annuity system is outdated with poor returns, at least half of what they could be or have previously been.

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