The economics of pensions - what should the country do?

System

Adjusting the state pension age to changes in life expectancy is not fundamentally difficult - it's just a matter of deciding the method and the indexing to use.


But the real problem is the probable increasing divergence of life expectancy of different social groups.
The better off, educated, professional or health-conscious, home counties are the ones who I suggest will continue to see increasing life expectancies and good health into old age.
But the poorer, ill-educated, junk food addicted, less intelligent, in heavy manual work, obese, northern are likely to see falling life expectancies.


There is surely a moral dilema - whether it is fair to apply the same life expectancy figures and retirement ages to all?

sevenhills

michaels wrote: »

Finally NI is income tax in all but name and the two should be merged, with the impact on wealthy pensioners accepted.

NI should be soley for peoples pensions, it may be similar to income tax in the way its collected, but the ammount paid in should reflect the ammount that you get back.



Although life expectancy may have reached a level, if you go back to the 1950s very few people lived more than a few years beyond pension age.
Now many can hope to live for 20 years after retirement.

Tromking

Thrugelmir wrote: »

All the experienced senior staff are taking an early retirement thanks to the generous pension scheme. Not only a good pension but also a times pension lump sum. Mere mortals in the private sector can only dream of such wealth.

No need to dream there’s thousands of these pensions available to all comers. Retention of the newbies is the key problem in my experience.

antrobus

sevenhills wrote: »

NI should be soley for peoples pensions, ...

It is, more or less.

A small slice of NICs go to the NHS. Most of it goes into the National Insurance Fund, where it is used to fund the payment of certain benefits (contributory JSA etc) but overwhelmingly gets used to pay the state pension.

The economics is straightforward. You get a lot of clever number crunchers to project (a) how much cash is going to be spent in the future and (b) how much cash will will be received in the future.

You adjust (a) or (b) in order to ensure that the Fund remains solvent.

sevenhills wrote: »

...
it may be similar to income tax in the way its collected, but the ammount paid in should reflect the ammount that you get back.

Only in aggregate.

kinger101

antrobus wrote: »

It is, more or less.

A small slice of NICs go to the NHS. Most of it goes into the National Insurance Fund, where it is used to fund the payment of certain benefits (contributory JSA etc) but overwhelmingly gets used to pay the state pension.

The economics is straightforward. You get a lot of clever number crunchers to project (a) how much cash is going to be spent in the future and (b) how much cash will will be received in the future.

You adjust (a) or (b) in order to ensure that the Fund remains solvent.



Only in aggregate.

This highlights the fundamental flaw in the design of the scheme when it was set up. Today's receipts are used to pay today's pensions. No opportunity for the money to grow through investment.

Not sure what the solution would have been at the outset, but it's impossible to unravel now given current payments are around £100B a year.

kinger101

ilovehouses wrote: »

It wasn't a flaw. A system where lots of people are contributing small amounts to a small number of people who aren't going to live for much longer anyway is easily affordable.

Investment is a red herring. Ultimately the choice is how much of our productive capacity we're willing to donate to those who aren't contributing to that production.

I've no idea what you mean by investment is a red herring, but if employer and employee NI was placed into even a moderately conservative pension scheme, it would have generated a vastly greater sum than the state pension. Even when we account for other contributory benefits and the redistribution of the pot.

The problem was there was no pot to pay the first pensioners. Which is understandable, but the failure to gradually transition to a properly funded scheme is a failure of successive governments.

kinger101

ilovehouses wrote: »

Your dreams must be quite small.

If my wife manages 20 years in the NHS she'll be on for, in today's money, £12k per year and a £10k lump sum.

The theoretical contribution rates are good but there's no need to be silly about it.

Do you know how much a annuity would cost which would pay £12K per annum, index-linked, with 50% spouse entitlement. We're taking about £400K.

I know £12K pa doesn't seem like much, but it is a wonderful benefit to have, and very difficult for those in the private sector on a mean salary to achieve.

Since moving to the private sector, I've had to divert about 12% of my income to a SIPP as my employer's scheme just wouldn't get me to a confortable retirement.

Thrugelmir

Tromking wrote: »

No need to dream there’s thousands of these pensions available to all comers. Retention of the newbies is the key problem in my experience.

How many early retirees have come back as bank or agency staff? Choose hours they work , better paid etc.

Unlike unskilled sectors of the economy total reverse.

michaels

zagubov wrote: »

This is bang on. You don't have to wander far here on this forum to see threads full of complaints about parents not disciplining their kids. It's no suprise that people end up with no respect for their seniors.

We don't even require our leaders to be senior any more, there's a kind of cult of youth creeping into politics where inexperienced newcomers are seen as ideal leaders.

As for "isms", I doubt there is an ism that can answer our problems. I used to teach a child who escaped Pol Pot's megalomaniacal regime. I don't want society to change into a Year Zero dictatorship or a Logan's Run society.

I think Looper was a good analogy for what we're currently doing, where we're required to execute our future selves. According to the latest headlines, we've been killing our elderly in the hospitals we've pretended were there to fix us up and return us to society. Or rather we didn't pretend it; their bosses seemed to think that society required it.:(

So the theory is that if productivity always rises then everyone can consume more in their lifetime than they produce (honestly, think about it) and this it is fair for each working generation to pay the pension of the one before to share some of this extra productivity wealth that the younger generation produce with the less productive(when they were young) seniors.

Problem is that it appears that a small subset may have gamed the system with free university education and db pensions that turned out to be very generous given increasing life expectancy. So probably there is not intergenerational unfairness in aggregate but there is for some.

Finally it has been spotted that pensions are a bit unfair so a cap has been put on the tax benefit which has had the unintended consequence of making those with higher salaries and db benefits find that the work life tradeoff comes up on the side of early retirement. Nor sure how well capitalism plus progressive taxation works when the highest earners decide it is no longer worth their while working and we exempt their income from one part of personal taxation (ni).

michaels

sevenhills wrote: »

NI should be soley for peoples pensions, it may be similar to income tax in the way its collected, but the ammount paid in should reflect the ammount that you get back.



Although life expectancy may have reached a level, if you go back to the 1950s very few people lived more than a few years beyond pension age.
Now many can hope to live for 20 years after retirement.

Gets my vote, I am in my 40s and have my full state pension entitlement so can I stop paying ni now please