Raising the pension age in order to pay for pensions

CLAPTON

grizzly1911 wrote: »

Sadly that does not inspire one iota of confidence. A nice earned for the intertmediaries though. We could no doubt roll them into annuities at the end of the cycle cream a little more off the top for good measure.

Said intermediaries could then lend the money to the government and charge interest on said loans to be paid for by the taxpayer.

Add on a dividend of say 5% of all costs to be paid to a select few.

The taxpayer could also fund the ultimate back stop that will always be required.

:beer:

interestingly I was visiting an elderly relative yesterday: financially very secure as she benefits from a indexed linked final salary pension from a major UK company.
She had just received a yearly pension scheme review.

for the assets of the scheme it showed:

20% in stocks and shares
60% various government gilts
20% other (cash, property, etc)

it didn't say where the shares were invested or the income generated by the various items

but 60% is 'invested ' in government gilts which means that the taxpayers is funding the 'coupon' to pay the pensions : just like they would if it was an unfunded government scheme

robmatic

CLAPTON wrote: »

but 60% is 'invested ' in government gilts which means that the taxpayers is funding the 'coupon' to pay the pensions : just like they would if it was an unfunded government scheme

Not really, as the scheme had to purchase the gilts.

CLAPTON

robmatic wrote: »

Not really, as the scheme had to purchase the gilts.

how does that work then?


the money from the people was used to buy gilts (i.e. government debt) via the pension fund (less their cut/expenses)
and then the taxpayer pays out to the pensions funds who then pay the pension


or the people paid the same amount of money to government who in due course paid a pension

no difference

Loughton_Monkey

CLAPTON wrote: »

how does that work then?


the money from the people was used to buy gilts (i.e. government debt) via the pension fund (less their cut/expenses)
and then the taxpayer pays out to the pensions funds who then pay the pension


or the people paid the same amount of money to government who in due course paid a pension

no difference

Boy you have a blind spot on these issues don't you!

1. Any government [taxpayer] has to borrow money, and pay coupon (say 2.5%). Whether this borrowing comes from China, UK wealthy people or corporations, or UK pension funds is immaterial.

2. So a pension fund of (say) £200K built up by an individual (and/or his employer) might be invested £120K into GILTS. If you want to perceive it as an additional cost to the taxpayer [because a new pensioner exists] then it starts off only at £3k a year, dwindling down to nothing as the pension fund capital decreases.

3. A more normal way of looking at it would be to say if the pensioner retired without any pension fund, the state (taxpayer) would pay basic state pension plus extra benefits. If, however, the pensioner has private means, the taxpayer pays basic state pension only. He still has to pay £3k coupon on gilts, but would pay it to different investors.

robmatic

CLAPTON wrote: »

how does that work then?


the money from the people was used to buy gilts (i.e. government debt) via the pension fund (less their cut/expenses)
and then the taxpayer pays out to the pensions funds who then pay the pension


or the people paid the same amount of money to government who in due course paid a pension

no difference

The key difference between an unfunded pension arrangement and a funded one that purchases gilts is that the funded one actually hands over sufficient money first.

The employee contributions in our current unfunded public sector arrangements don't meet the future liabilities, while in the funded arrangement the employee and employer contributions should meet the future liabilities.

CLAPTON

robmatic wrote: »

The key difference between an unfunded pension arrangement and a funded one that purchases gilts is that the funded one actually hands over sufficient money first.

The employee contributions in our current unfunded public sector arrangements don't meet the future liabilities, while in the funded arrangement the employee and employer contributions should meet the future liabilities.

Lets compare two individuals

a invests in a government 'funded' scheme of size Z

b just pays the same amount of money to the government but it doesn't go into any fund.


in the case of a. the government keep a separate ring fenced accounts called A with Z in it.

in case b. government debt decreases by the amount Z.


so in 20 years time when pension is to be paid


in case a. government has a larger debt (by Z) but a fund A of value Z i.e. the extra debt and the pension fund net off to zero

whereas in case b. government has exactly the same overall level of debt and liabilities as in case a.

CLAPTON

Loughton_Monkey wrote: »

Boy you have a blind spot on these issues don't you!

1. Any government [taxpayer] has to borrow money, and pay coupon (say 2.5%). Whether this borrowing comes from China, UK wealthy people or corporations, or UK pension funds is immaterial.

2. So a pension fund of (say) £200K built up by an individual (and/or his employer) might be invested £120K into GILTS. If you want to perceive it as an additional cost to the taxpayer [because a new pensioner exists] then it starts off only at £3k a year, dwindling down to nothing as the pension fund capital decreases.

3. A more normal way of looking at it would be to say if the pensioner retired without any pension fund, the state (taxpayer) would pay basic state pension plus extra benefits. If, however, the pensioner has private means, the taxpayer pays basic state pension only. He still has to pay £3k coupon on gilts, but would pay it to different investors.

Can I ask if you have heard of and understand, what is often referred to as the paradox of thrift (old fashioned stuff) or simply the saving paradox?
I you have, do you accept it is true in some circumstances?

Loughton_Monkey

CLAPTON wrote: »

Can I ask if you have heard of and understand, what is often referred to as the paradox of thrift (old fashioned stuff) or simply the saving paradox?
I you have, do you accept it is true in some circumstances?

I am no Keynseyan, and so I pay little regard to him.

The paradox, even if true, was developed and promulgated as appropriate during times of recession. Since throughout a person's active adult life he sees possibly <10% of time in recession, it would be perverse to act on it throughout life merely because of it being marginally "bad" for the community 10% of the time!

As for every paradox, there is usually a 'mirror' that would say [in this case] during times of "boom" lack of saving is damaging to the economy as a whole?

Besides, his paradox was developed at a time when 'savings' meant cash under the mattress rather than deposits in the bank or in shares [thus fuelling borrowing and investment]. Also, it assumed an economy was an "island" so savings outside the UK economy wouldn't have the same effect anyway.

Keynes did not know of, or understand a global economy. Why should he?

Sounds like you want (like Keynes) some sort of "Socialist Idyllic Paradise" in which the whole economy is controlled centrally by the government. We would all work where we were sent, earn what we were given, buy what was supplied to us, and generally do what we are told. I seem to recall a couple of large economies who tried this. Didn't work. Complete disaster.

So in short, I reject this paradox completely and utterly.

robmatic

CLAPTON wrote: »

Lets compare two individuals

a invests in a government 'funded' scheme of size Z

b just pays the same amount of money to the government but it doesn't go into any fund.


in the case of a. the government keep a separate ring fenced accounts called A with Z in it.

in case b. government debt decreases by the amount Z.


so in 20 years time when pension is to be paid


in case a. government has a larger debt (by Z) but a fund A of value Z i.e. the extra debt and the pension fund net off to zero

whereas in case b. government has exactly the same overall level of debt and liabilities as in case a.

In case a, the employer has paid into the fund. In case b, it hasn't.

CLAPTON

robmatic wrote: »

In case a, the employer has paid into the fund. In case b, it hasn't.

well obviously if more money is involved in one case when compared to the other then yes there will be difference but that isn't because one is funded and one isn't.