The reality of the Pension Debt (To encourage discussion)

SquatNow · 3 December 2007 at 7:55PM

In march 2006 the estimated figure of civil service pension debt was... wait for it.... £1 Trillion.
http://findarticles.com/p/articles/m...9/ai_n16161931

In 2007 there are an estimates 31,600,000 eligable PAYE taxpayers.
http://www.hmrc.gov.uk/stats/income_tax/table1-4.pdf

Those in their 50s-80s have left a civil service pension bill of £31,645 per person eligable to pay PAYE... and those are conservative estimates, assumig that everyone who can work, does, and older people don't retire and instead keep working and paying PAYE. And the estimate is 2 years out of date... will be higher now.

Those now in their 50-80s didn't actually pay very much tax. In fact they paid far FAR less than they should have done the services they received. This was acheived in 4 ways:

Deferred Payment - since the late 50's all the civil service have agreed to work for MUCH lower wages than they would earn in private sector jobs in exchange for a great pensions. The government put NO MONEY ASIDE to cover those pension costs, choosing instead to pass them onto the generation which is now in it's 20s.
Peoples NI money - was not put aside either, it was just returned to them in the form of other Tax Cuts. In reality people currently in or approaching retirement have saved NO MONEY towards a pension, having had it all back. Genuinely... the group that represents old folks, can't remember what it's called, went on TV and said that there should be plenty of money saved up in the vaults from everyone NI payments. They actually think the government was PUTTING IT ASIDE somewhere!
Selling of national assets - At the start of the 80s the government started to run into trouble with the policy above, as members of the civil service starting to retire and demand the pensions they were promised. To cover the shortfall everything was privatised, Gas, Water, BT, BR, Council Houses, School Fields, a "firesale" in fact, and the money used instead of a tax increase.
Energy - North sea oil is now dwindling but those in their 50-80s benefited from cheap petrol and gas for almost their entire lives. They closed the mines and switched to cheaper gas-fired powerstations with no thought to what would happen when the gas ran out. They benefited from "clean" nuclear energy which has left a £100bn+ cleanup bill for future generations, who face spiraling energy prices and probable shortages and blackouts.

The country was asset stripped and huge pension debts were run up, while 1 or 2 generations lived in a british "golden age". The nations infrastructure is crumbling, it's youth are crippled by debt and high taxes, while almost all of the houses and wealth in the country are owned by those in or near retirement.

Those in their 50-80s had the highest standard of living in the history of the human race, and it's probable that no generation in the future will ever enjoy such a high standard of living again.

Question: How far will we go to give those in their 50-80s a comfortable life? They asset stripped the nation... how far will we go to allow them to keep living in the lifestyle they've enjoyed? 50% base rate income tax? 60%?

dunstonh · 3 December 2007 at 8:41PM

how far will we go to allow them to keep living in the lifestyle they've enjoyed? 50% base rate income tax? 60%?

Tax shouldnt have to go up that much. The increase in the state retirement age between 2024 to 2044 to age 68 pays for a lot of it.

Remember that the state pensions themselves account for 4/5ths of state pension payments with 1/5th being govt backed schemes. So increasing ages on 4/5ths is more cost effective than increasing ages on the 1/5th.

That said, the Govt backed schemes with retirement ages at 60 really did need to be increased (with some occupation exceptions).

The NPSS being introduced in 2012 will also reduce the amount being paid on pension credits in the long run as well.

Milarky · 3 December 2007 at 9:55PM

No one is going to 'sign up' to any arrangement whereby the state pension can be clawed back in-payment if things get a bit sticky for the country.

Also it is naive to believe that any national scheme (the beloved NPSS) set up will either be properly funded from the start or truly subject to the disciplines of the actuarial profession - No it'll be part funded/part pay-as-you-go.

This government/ANY government will not take any politically delicate decisions when they don't really have to (The: "I'll be long dead when the chickens come home to roost" argument) and will calibrate all response according to the principle of least action.

The result will be a continuing mismatch between resources and 'need' - just as mis-allocation of resources occurs every day in the economy. (The 'economy' itself being a moot question of whether it is built on much else except sand)

But I dare say the country will scape through in some fashion. No one is predicting famine in the UK (yet?) just a progressive slide into relative decline.

[...right, where's the lifeboat?]

SquatNow · 3 December 2007 at 10:19PM

I suppose they could make NPSS compulsory and increase contributions to 30% of salary, but thats the same as a tax increase.

Call it NPSS, call it a Llama. It's a tax increase.

The watershed was a few years back where the government declared that for people paying NI now, it was just to pay for the NHS, not their pension.

Boom! 20% income tax increase

EdInvestor · 4 December 2007 at 12:33AM

SquatNow wrote: »

The country was asset stripped and huge pension debts were run up, while 1 or 2 generations lived in a british "golden age".
Those in their 50-80s had the highest standard of living in the history of the human race, and it's probable that no generation in the future will ever enjoy such a high standard of living again.

And yet recently it was widely reported that the UK has one of the lowest state pensions in Europe.

There are numerous examples of existing pensioner poverty. For instance despite the 200 quid winter fuel payment, thousands of pensioners die of the cold every winter.

How can this be explained?

ManAtHome · 4 December 2007 at 1:02AM

Don't agree with the numbers - work 40 or 50 years whith the state taking 20-25% of your income (remember employers NI) in return for £100 a week, excellent chance of NHS MRSA, private dentistry etc - not a good deal.

Oh, and a fair number in their 80s were a bit instrumental in ensuring you're posting in English.

dunstonh · 4 December 2007 at 1:08AM

Also it is naive to believe that any national scheme (the beloved NPSS) set up will either be properly funded from the start or truly subject to the disciplines of the actuarial profession - No it'll be part funded/part pay-as-you-go.

It will have around 70% uptake if it follows other countries that have something similar. Long term, that will pull a lot of peoples income above the breadline for pension credit.

Personally, I have my doubts to it's long term success as higher rate taxpayers arent going to want to go near it, self employed will see no benefit and those that it will benefit most in the long run wont join as they are too busy living for the now building up debt and not making provision for later.

SquatNow · 4 December 2007 at 7:31PM

EdInvestor wrote: »

And yet recently it was widely reported that the UK has one of the lowest state pensions in Europe.

There are numerous examples of existing pensioner poverty. For instance despite the 200 quid winter fuel payment, thousands of pensioners die of the cold every winter.

How can this be explained?

I didn't say that everyone else in Europe was screwed as well.

France and germany are going through strikes because of their governments attempt to start to try to addres the problems.

The british government has found the solution though. Just don't talk about it... someone else will sort if out in a few years.

ManAtHome wrote: »

Don't agree with the numbers - work 40 or 50 years whith the state taking 20-25% of your income (remember employers NI) in return for £100 a week, excellent chance of NHS MRSA, private dentistry etc - not a good deal.

That wasn't to pay for their retirement, that was just Tax. There's no big bank valut with money piled up in it. The NI payments were simply returned to them in the form of tax cuts.

They chose a government that offered them a good pension and low taxation. Their government lied to them. Sounds unfair... but they enjoyed the benefits of those lies... and now the next couple of generations have to compensate them.

"The man at the holiday shop told me I could go on holiday and still have enough money to pay for food for the rest of the month. He lied, now I've no cash for bread or milk. I had a great time on holiday, can I have some money please?"

It's called "moral hazard". They should have checked what the government was doing with their money. They could have checked, but they didn't. They chose to sit back and enjoy the benefits. So who's fault is it?

ManAtHome wrote: »

Oh, and a fair number in their 80s were a bit instrumental in ensuring you're posting in English.

I thank those in their 80s for saving me from speaking German, especially as their language has 3 genders. However I'm not sure how saving me from the Germans only to sell me into slavery really helped me?

dunstonh wrote: »

It will have around 70% uptake if it follows other countries that have something similar. Long term, that will pull a lot of peoples income above the breadline for pension credit.

Sadly not. The government hasn't changed it's policy... it's not putting it aside, it's using it as general taxation.

dunstonh wrote: »

Personally, I have my doubts to it's long term success as higher rate taxpayers arent going to want to go near it, self employed will see no benefit and those that it will benefit most in the long run wont join as they are too busy living for the now building up debt and not making provision for later.

Or as is the case now, everyone is busy struggling to pay their mortgage and can't afford to save up. It's a black hole, like NI. You put you money in, and you never see it again.

Pensions are just a big Pyramid sceme. Mathematically they simply don't work, unless every dies within 5 years of retirement.

Work for 40 years... putting away 10% of your money
Retire for 20 years... means you have 20% of your lifetime mean salary to spend.
If mean salary is £1000, you'll get to retire on £200 a month.

Now work out what 2% (ok that's low I know) annual inflation is over 40 years. Most of your pension savings are inflated away. Any "investment" of the money has to beat inflation every year (with no losses) by a large margin to make any sort of living on a pension possible.

The way it works is that your money isn't ringfenced. So when grandad's pension pot is empty, he simply moves onto yours. You will be OK though, as long as enough poeple keep paying in below you in the Pyramid, and the people above you die before exhausting the fund in the pot. Tip: Have 5000 children and suprise your elderly relative regularly with loud noises.

defender_of_the_weak · 5 December 2007 at 10:10AM

Squatnow- I think you are failing to grasp some people principles as opposed to the bare mathematics.

The government lied- Every government lies and has done for the last however many years. Look at the latest round of sleaze, same basic sleaze and back-handing, different party.

When did you get the impression that the great british public were ever free

Pensions do work, its just the model that needs changing to take into account increased life expectancy etc.

If you squat and dont pay a mortgage you must be putting loads away for your pension

SquatNow · 5 December 2007 at 12:14PM

defender_of_the_weak wrote: »

The government lied- Every government lies and has done for the last however many years. Look at the latest round of sleaze, same basic sleaze and back-handing, different party.

Conservative and Labour are now so similar there is no reason to refer to them seperately. How about "ConservoLabour"?

Worryingly, a while back suggestions were made by the government that as the 2 big parties agreed on most issues there was no longer a need for elections... a permanent government made up from the 3 main parties at the current proportions would be more efficient.

defender_of_the_weak wrote: »

When did you get the impression that the great british public were ever free

I never said we were free... we just think we are.

defender_of_the_weak wrote: »

Pensions do work, its just the model that needs changing to take into account increased life expectancy etc.

Your right, they might work... but not in a model people would be prepared to accept. Work until your 70, live 10 years in retirement. Or pay 50% of your salary each month into your pension. Neither would be accepted... everyone wants to have their cake... and eat it.

Dithering_Dad · 5 December 2007 at 12:55PM

EdInvestor wrote: »

And yet recently it was widely reported that the UK has one of the lowest state pensions in Europe.

It has also been widely reported that the UK has more private pension provision than the whole of the rest of Europe put together. When I worked in Norway, most of them thought it was strange that we paid social taxes (NI) and also paid into private pensions. They have a great state pension, but then it's backed by a 52% income tax system with 25% VAT, a huge tax hike on alcohol, oh and lots of Oil & Natural Gas.

The choice seems to be that we either pay a lot more in tax and get a better state pension or we continue to pay lower tax and get a basic state pension. After always paying into a pension since day 1 of working, I'm happy to settle with the second approach.

I've always made sure that my retirement savings took priority to my luxury spending. I may have missed out on decades of X boxes, Nintendos, Plasma TVs, top of the range computers, brand new cars, ipods, mobile phones, etc. etc. but at least when I'm old n grey I'll be able to sit in comfort in front of a roaring fire.

The reality of the Pension Debt (To encourage discussion)

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