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The State and Public Sector pensions are in crisis, due to the present unfunded “pay as you go” system, this outdated and archaic system in which today’s pensions are paid directly from the contributions of today’s working members would take top prize for idiocy, if it was not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.