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.
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