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.