Raising the pension age in order to pay for pensions

MFW_ASAP

CLAPTON wrote: »

like a person who owes say 300,000 but has saving of 50,000 thinks be's better off than some-one who simply has debts of 250,000 (and it happens ; just read the loan boards/DFW etc.)

Just saw this, nothing to do with our subject but a point I have made on the MFW boards a few times.

Naturally the net worth of both individuals is the same, but the person with £50k of savings is in a better financial position if any problems occur, such as job loss. He can dip into the £50k to pay his mortgage, buy food, etc. The guy with no savings will get into arrears.

This is why I believe and always advise) that everyone should have a decent amount of emergency savings before they embark on mortgage overpayments, especially if they can't easily get those overpayments back.

Even for simple things like a central heating boiler breaking or car problems, rather than having to arrange a short-term loan at high rates you just dip into savings to solve the problem and then replace the money ASAP.

MFW_ASAP

CLAPTON wrote: »

indeed so, the future pensions for both state and public sector are being reduced without any reference to being funded which reflects the concern about the demographic changes to the population mix.

The increasing contributions aren't (in general) going into a pension fund but are simply going into the government bank account and reducing current debt.

Very sensible compared to going into a second bank account called 'pensions' whilst maintaining a higher level of debt in the general a/c:
although of course it makes absolutely no difference how many a/cs you have: it's the netted off total that counts.

Out of interest, do you know what happens to the employee contributions towards unfunded public sector pensions?

(both in your model and in reality)

CLAPTON

MFW_ASAP wrote: »

Just saw this, nothing to do with our subject but a point I have made on the MFW boards a few times.

Naturally the net worth of both individuals is the same, but the person with £50k of savings is in a better financial position if any problems occur, such as job loss. He can dip into the £50k to pay his mortgage, buy food, etc. The guy with no savings will get into arrears.

This is why I believe and always advise) that everyone should have a decent amount of emergency savings before they embark on mortgage overpayments, especially if they can't easily get those overpayments back.

Even for simple things like a central heating boiler breaking or car problems, rather than having to arrange a short-term loan at high rates you just dip into savings to solve the problem and then replace the money ASAP.

yes indeed, it is prudent for an individual to have a cash emergency fund or guaranteed access to credit.

It makes no sense for a country to do the same however as a countries' debt is a continuous cycle where debt is being repaid and new debt being taken out all the time.

CLAPTON

MFW_ASAP wrote: »

Out of interest, do you know what happens to the employee contributions towards unfunded public sector pensions?

(both in your model and in reality)

I have no model, I was discussing real life and what actually happens everyday to pension money in and pension money out.

I assume that unfunded employee pension contributions (just like NI) simply go into the government pot called debt reduction and so reduce the amount of money we borrow (compared to maintaining a pot called 'pensions').

MFW_ASAP

CLAPTON wrote: »

It makes no sense for a country to do the same however as a countries' debt is a continuous cycle where debt is being repaid and new debt being taken out all the time.

Agreed, which is why I said "nothing to do with this subject".

Anyway, as I also said, we'll have to agree to disagree about whether funded/unfunded defined benefit/defined contribution pensions have differen impacts on future tax payers.

CLAPTON

MFW_ASAP wrote: »

Agreed, which is why I said "nothing to do with this subject".

Anyway, as I also said, we'll have to agree to disagree about whether funded/unfunded defined benefit/defined contribution pensions have differen impacts on future tax payers.

for any given payout, funded and unfunded pension schemes, in general, certainly can have different impact on taxpayers
but they have similar impact on the economically active who will produce all the goods and service the pensioners consume.

MFW_ASAP

CLAPTON wrote: »

for any given payout, funded and unfunded pension schemes, in general, certainly can have different impact on taxpayers
but they have similar impact on the economically active who will produce all the goods and service the pensioners consume.

Aren't taxpayers and 'the economically active' one and the same?

Loughton_Monkey

CLAPTON wrote: »

whatever your view about real resources
surely you must see that the state having two bank a/cs
one labelled 'general debt' and one labelled 'pension fund' makes no sense.

CLAPTON wrote: »

by having a 'fund' is exactly like having two bank accounts:
one has a positive balance that you are proud off (called pension fund)
but the other has an increased overdraft (exactly matching the 'funded' ) scheme

so in 20 years or so we may well have a large book keeping entry in the savings a/c called pensions
but we have a large booking keeping entry is the a/c called national debt
which, if netted off, would be exactly the same number if there was no fund and all payments came off the entry called 'national debt'

Whilst from an accounting point of view this may be largely correct, you don't seem to realise the implications.

Had State Pension, and the unfunded public sector schemes, been funded from the start, then do you realise the sheer scale of those accounts? If the UK total national debt, now, is £1.4 trillion, then as a pure wild guess I would estimate we would be talking of Pension Fund = £16 trillion, National Debt £17.4 Trillion.

On the balance sheet, this is the same, but that's not the point. It's the revenue. Had the government recognised the cost year on year (Payments out, less payments in, plus net increase in o/s liabilities) then any pensions problems we have now would have been identified and quantified year by year, and something done about it far earlier.

Using your own example, but exaggerating, you have a mortgage of £350K and cash of £50K. I have a mortgage of £2 million and equity of £1.7 million. We both earn £50K. Our revenue accounts would show that you can afford your position. I cannot.

CLAPTON

MFW_ASAP wrote: »

Aren't taxpayers and 'the economically active' one and the same?

NO

economically active mean people who produce the goods and services whilst taxpayers are people who pay tax

The demographic changes that are expected in the workforce, will reduce the number of economically active people (as a percentage of the total population)
i.e. will reduce the number of people who produce and distribute food, clothes, provide medical services etc etc

It is this reduction that is sometimes referred to as the demographic timebomb although many don't agree with that description.


In general the economically active will also be taxpayers but so will the retired and some young people and even people on JSA etc.

(I used to use the phrase 'working people' to mean 'economically active' but some people associated this with some Marxist worker/owner nonsense so I now use the generally accepted term.)

MFW_ASAP

The Norwegian 'Government Pension Fund' currently stands at $1tn. The California Public Employees' Retirement System (CalPERS) currently stands at $247bn. The Civil Service Retirement System (CSRS) stands at $832bn.

As I have already said (and LM has said above), had the UK government been paying into a sovereign fund right from the start, they would have realised just how unaffordable FS pensions were and would have gently adjusted the payouts over a longer time frame, instead of hitting the breaks hard.