The reality of the Pension Debt (To encourage discussion)

Ian_W

SquatNow wrote: »

Please discuss the topic rather than just insulting people. If you can't make an on topic comment, then don't bother posting. Simply hurling insults at people doesn't prove you are supperior, it simply makes others think you have a small !!!!!!.

Captured for posterity ... [and entertainment value only, given that EdInvestor is a SHE!].

jamesd

Ian_W wrote: »

[MIND THE CREDIBILITY GAP! ]

As it's a main point of your original [strike]rant[/strike] argument that [strike]your target hate group[/strike] older folks enjoyed lower taxes in the past, could you please be bovvered to point out the evidence for that claim over say the last 40-50yrs?

Otherwise I think your signature could be greatly improved by adding the words,
" by making it up as I go along! "

Perhaps you'd prefer better informed discussion? There are two aspects to the point:

1. The changing dependency ratio, the number of people who are retired and collecting the state pensions and means tested benefits. For the baby boom generation at the start of the pension system it was normal for people to die within five years of retiring - life expectancy for males was just 68 years with a 65 year retirement age. That kept the cost low and made it easy in this generation to add benefits without the cost being high when spread over the large baby boomer generation that was paying for them. That's no longer true and is becoming less so, as life expectancies rise and the large baby boomer generation has pensions and benefits paid for by smaller following generations. It's easy to see that if people live 23 years after retiring, as a male does today, the cost for their children and grandchildren will be larger than if they died in just three years. This is good, but it is necessary to fund it somehow.

2. Whether taxes were subsidised by other things and kept lower than they would otherwise have been to pay for the benefits being delivered. North Sea oil has been the biggest of the subsidies, though sale of state properties and borrowing have played a significant role. But this is a minor point, the changing demographics and fewer people paying for benefits for more people for longer than has been the case in the past are the big story.

Simply, the baby boomers have been able relatively painlessly to have benefits provided for those in retirement that will be far harder for their children and grandchildren to pay for as the baby boomers retire and collect those benefits. So now their children and grandchildren are having to both pay for their parents and grandparents and put away money for themselves so this doesn't happen again.

And that's the big story: baby boomers have voted themselves benefits but not paid for them, instead passing on the bill for their children and grandchildren to pay.

That's not a surprise - which governments have tried to clearly explain to the people what was happening and what the consequences would be? If it was explained properly there might have been some demand to actually set aside money to pay for this.

Source: Turner Report and other reports of the Pensions Commission.

EdInvestor

jamesd wrote: »

1. The changing dependency ratio, the number of people who are retired and collecting the state pensions and means tested benefits... as life expectancies rise and the large baby boomer generation has pensions and benefits paid for by smaller following generations.

This ignores the fact that not all young people are taxpayers - substantial numbers are not working, whether staying at home as parents or carers, on benefits or otherwise not paying a lot of tax...... Of course people retiring now are also far better off than their predecessors and thus far less likely to need state assistance.A key additional factor is the much larger percentage of women who will be at least partly self funding. Being a much healthier group benefitting from better nutrition and medical care they are also less likely to need medical treatment at an early retirement age.

2. Whether taxes were subsidised by other things and kept lower than they would otherwise have been to pay for the benefits being delivered. North Sea oil has been the biggest of the subsidies, though sale of state properties and borrowing have played a significant role.

Of course the economy has changed structure considerably and now relies on consumption spending much more heavily for growth.The new group of well off retirees will be a big driver of growth in the economy, a "profit centre" not a cost centre.They also control the vast majority of family investment wealth ( in and around the 80% mark) and thus will be a major driver of growth in this area.

I think it was the McKinsey group which published an illuminating report on this a few years ago, noting that the UK was one of the best placed nations to avoid any kind of generational drag from the babyboomers retiring.

Ian_W

Perhaps you'd prefer better informed discussion?

Actually, jamesd I think that would be much more productive than what we've had thus far. How damned kind of you to offer.

For starters lets be clear who the baby boomers are - born after 1945 and before the late 1960's - with the exception of a relatively small number of females - they've not yet reached state retirement age. To target 65-80yr olds who lived through the war, then the 20yrs or so of post war austerity borders on the grotesque, particularly as there is real poverty amongst some older pensioners of my parents generation.

The next thing we should be clear about is that there has been a non-means tested state pension since 1911, so every generation since then has paid [on a PAYGO basis] for their parents and grandparents pensions - though as you say longevity may make this more difficult in the future. However the Beveridge Report which introduced NI dealt with more than better pensions - it introduced the NHS and non-means tested unemployment benefit. It has been dubbed the cornerstone of the modern welfare state - and, like topsy, that welfare state - even ignoring the NHS - has grown to an unrecognisable extent.

Frank Field was told to think the unthinkable but then sidelined and later sacked for uttering the barely radical! There is a very real problem with welfare dependency and widespread fraud [the link is hilarious when you hear the "kids" names!]. I don't think I'm alone in thinking it incredible that a "wife swap" contestant was receiving over £30Kpa in benefits simply for creating her own "baby boom" or that those [home grown or imported] who have never contributed a tap can receive seemingly endless benefits.

Some benefits are means tested, others are not but AFAIK only the state pension is contributions tested and whatever my age I would rather my taxes went to those who'd paid for my education, health care etc than those who hadn't. So my starting point is to say that pensions are part of state welfare provisions and to review them in isolation from the rest of that budget is flawed from the start. IMHO it's like saying - I can't afford food because I spend all my money for fags and booze!

As for the demographics, they're worked out by far clever folk than me [as was UK banks buying into US SP housing debt ] but I do think they overstate the unsustainability argument by ignoring certain things, like pensioners themselves being tax payers or the fact that every generation since WW2, including mine and the present one, has been more prosperous than the last. Ironic isn't it, as we enter the start of this "crisis", that only last week the Beeb was reporting that there are more people employed in the UK than at any time in our history?

jamesd

EdInvestor, a higher percentage in work helps to reduce the problem of a higher dependency ratio. So the change from women as housewives to women as earners for longer is a good thing for this particular issue. And for general social good also IMO.

People having more of their own income in retirement doesn't offset it unless they voluntarily choose not to collect the basic or additional state pensions. So long as they collect them, those have to be paid for regardless of their other income. Their own income does offset pension credit though, and arranging for few people to qualify for that is one of the purposes of the pension changes.

Being healthier isn't really a good thing (for the budget, it is for the people, of course:) ). That and improved care means that people are likely to live longer while undergoing expensive treatments, making the problems of the NHS and council care systems worse.

Well off retirees can be a spending source but how true is that for the majority? We're a pretty unusual group here, more empowered and inclined to try to invest for ourselves than average and it's easy to think that we're normal.

The McKinsey group were probably right, courtesy of us having lower state pensions than the rest of Europe. But still, it's a problem to deal with an increasingly aged population. For all their faults, this government is at least trying to address some of the problems. Promising higher benefits is perhaps not the best thing to be doing though.

jamesd

Ian W, I'm a baby boomer, though from the later part, so I will get to see the problems of any generational rebellion that may happen - it's part of why I'm particularly interested in this subject.

Baby boomers started in 1945, so the earliest of them are now 62-63 years old. No point in talking about grotesque actions for 65-80 year olds because those aren't the generation we're really talking about when it comes to demographic shifts. Though I don't see anything wrong with taxing the relatively wealthy among this group, same as any other group.

While it's true that pensions are just part of the picture, it is possible to discuss them alone. Though discussing things like NHS funding is also worth doing since that's also a growing problem that's already end-loaded, with the heavy expense coming near the end of life. It's another of the cases where those receiving the benefit aren't the ones funding it, so its affordability depends on reasonably consistent generation sizes.

Personally I'm not really keen on trusting that the generation of children and grandchildren of those my age will be happy to continue with this. I'd rather try to get measures in place now so that we can get as much as possible of the baby boomer generation doing more of their own funding for what they will be receiving. A later retirement age is one way. A mandatory contracted out (so investment not tax funded) NI type for all those at least five years from retirement would be another, as well as the additional state pension. Different rates based on time to retirement, though, perhaps nothing for 5 years to go, then 1/2 % for employee and 1/4 % for employer for every 3 more years to go up to a maximum of 3% employee, 1.5% employer at 23 years before retirement, cappped at say the first 25,000 of earnings.

Not ironic at all to see reports that we have more people employed than at any time in the past. The baby boomers haven't reached state retirement age yet.

EdInvestor

jamesd wrote: »

People having more of their own income in retirement doesn't offset it unless they voluntarily choose not to collect the basic or additional state pensions.

Yes it does if they are taxpayers.Average pensioner income is currently around 14k,and personal allowance around 7k, 5k for younger ones. Obviously many younger pensioners are much better paid than that, as the very elderly group are mainly below the poverty line and wholly state funded.Additionally many younger pensioner work and pay tax.

Retailers and other businesses are just waking up to the potential spending power of this market.

Being healthier isn't really a good thing (for the budget, it is for the people, of course:) ). That and improved care means that people are likely to live longer while undergoing expensive treatments, making the problems of the NHS and council care systems worse.

Hmm. Would you prefer they die now and have the pre-death expensive treatment, or leave it till later? Most people only access very expensive medical treatment just before they die The longer they leave it, the more likely there's a cheaper cure. Greater health awareness and better nutrition may also reduce the costs in this upcoming generation.

Well off retirees can be a spending source but how true is that for the majority?

See above, pensioner incomes are rising strongly, and most oif the money is not state provided..

jamesd

EdInvestor, agreed about the taxpayers in the set. The tax revenue, particularly from personal and work pensions, is useful. People dying later and living longer while sick is just something that has to be paid for. Though there's also a lot of health care rationing going on.

The money that isn't state provided isn't the issue. The projected increase in benefits to pensioners (basic state pension, additonal state pension, pension credit, other pension benefits, housing and council tax benefits and attendance and disability living allowances) are expected to rise from 99 to 114 billion in 2020 and from 121 to 154 billion in 2030 2007/8 Pounds as a result of linking pension increases to wages rather than inflation.

Who should pay for it? At the moment most of the people who will benefit are still working, so there's some chance for them to pay their own way instead of making their children and grandchildren pay most of the bill.

If, as you say, pensioner incomes are rising strongly, I suppose that you believe that those who will have those strongly increasing incomes can afford to pay for the benefits they will receive?

Or maybe there should be a system like the reduction in age allowance, so that better off retirees don't receive basic state pension that they don't actually need?

Source: Pensions Reform Factsheet, December 2007, figure 13.

SquatNow

The problem is if you make the state pension means tested, people wont bother saving for a private pension.

EdInvestor

jamesd wrote: »

If, as you say, pensioner incomes are rising strongly, I suppose that you believe that those who will have those strongly increasing incomes can afford to pay for the benefits they will receive?

No, they contribute to the eocnomy through investing and consuming as well as paying tax on their income.

Or maybe there should be a system like the reduction in age allowance, so that better off retirees don't receive basic state pension that they don't actually need?

The reduction in age allowance already performs that function in fact.I don't agree with turning the basic state pension into a means tested benefit.It's an entitlement which people have specifically paid for.