The reality of the Pension Debt (To encourage discussion)

SquatNow

EdInvestor wrote: »

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

So pensioners pay more in tax than they receive in pension payments?

Also, are you saying pensioners pay income tax on their pensions?

The catch is, if a pensioner doesn't have a pile of cash in a private pension sceme, shares or a bank account, their entire retirement has to be funded by the remaining productive workforce.

Saying it's payed for by all taxpayers is inaccurate. A person on the dole pays VAT, but they arn't a net contributor, they are a net receiver. Only those in gainful employment are net contributors.

We are fast approaching a situation were the number of people in retirement, plus people who live entirely on benefits, will catch up with and pass the number of people gainfully employed.

Once the numbers are equal each person paying income tax will have to be taxed at least enough to entirely support one person in retirement/benefits.... (weekly pension/allowance, public services, medical costs etc), Plus enough to cover their OWN public services, etc

It matters not what tax the pensioner/benefit-recipient is paying, that tax has to have been paid by those in gainful employment in the first place, in order for the money to be given to the pensioner/benefit-recipient so they can pay the tax.

At a certain point there will be some many people in retirement/benefit-recipient receiving services that income tax will need to be so high that it is no longer worth working.

We are almost at that stage now... anyone with kid(s) earning less than about £20k a year would be better off on the dole. We will soon pass a watershed where the entire population will see no benefit in working.

That, incidently, is part of the reason for the recent re-jig of housing benefit... whereas previously HB would just pay your rent or mortgage interest, you'll now get an allowance... this will reduce the net income many living entirely on benefits receive, especially in areas of extreamly high house prices.

jamesd

EdInvestor wrote: »

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.

No, they haven't paid anything at all for their basic state pension. They paid for their parents', not their own.

The baby boomer generation has had a nice little con running (via the government, not necessarily individuals): inflation linked pensions for their parents whose pensions they are paying for. But then a campaign for their own pensions to be wage linked so their own children and grandchildren pay more for them. Pay less, take more. Nice deal if you can get it.

But someone has to pay and pushing all of the cost to the children and grandchildren, while also making them do real investing for their own pensions is not a fair approach.

Do note that I'm in the generation that I thinks needs to be paying more for its own pensions via real investing, so this is not a "make others pay for me" argument: it's make me and others pay more of the cost of what we will be receiving.

I'm happy enough to have the basic state pension start to decrease at say 12,000 a year per person and vanish completely at say 30,000.

SquatNow wrote: »

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

Per figure 3 in the Pension Reform Factsheet a low earner would expect a gross income of 111 a week under the current system, including both state pensions and some private contributions. 5,772 a year. I hope that's not enough for anyone to think that they are going to be so well off that they don't need to do more for a private pension.

But the campaign for bigger pensions succeeded and now the State Minimum Guarantee, a means-tested benefit paid via tax credits, is expected to increase that by 52 a week to 163 a week, 8,456 a year. Even with no tax that's still not a lot to live on and still pay rent. The problem is that this SMG is means tested so it will be reduced due to private pensions.

So here come the next reforms, to transfer money from the NI payments of higher earners that pay for wage-related additional state pension and use them to pay for increased pensions for low earners, via a move to a flat rate additional state pension that's not related to earnings, so it's just a tax. That will raise the state pensions to 145 a week and the investment based pension plan is expected to increase the private pension to 35. That makes a total of 180 a week, 9,360 a year in pensions. It also eliminates the SMG means tested benefit because the pensions are now above the means test limit so the low earner doesn't qualify for the SMG any more.

For the low earner half of the private pension money would be available via the SMG means tested benefit, to anyone who opted out of the new investment-based pension. 50% of the benefit for spending instead of saving is an incentive to do nothing and take the 8,456.

The median wage earner projected situation with both state pensions and the private investment-based pension is 237 a week, 12,324 a year, from figure 4.

The high earner projection (earning a bit below higher rate tax, at the upper earnings limit for NI today) is 285 a week, 14,820 a year.

Those who are getting that increase in state pensions from 96 to 145 a week aren't paying for it. Their children and grandchildren will be. Making the children pay more for those who need the money via the SMG is arguably at least a little fair. It's not so fair to make them do it also for the average person who can afford to look after themselves by saving more for retirement.

SquatNow

The catch is there is no way to tweak the figures in a way that solves the basic issue... too many pigs on the table.

Too many people receiving too much money in pensions/benefits/services, with far too few people paying in.

It's going to end VERY badly. To support the current "older" generations approaching or in retirement, taxes on wages have to rise, and the government has to find a way to force people to work. It's going to be VERY bad.

EdInvestor

Before complaining too much about unfairness to the younger generation you may perhaps care to take a look at the rates of income tax paid by the older generation in the 70s and 80s, and then compare them with what young people pay today.

http://www.hmrc.gov.uk/stats/tax_structure/menu.htm

jamesd

SquatNow, better to do something more that reduces the problem than leave it as it is. More on pensions and advertising for 30 year old and younger skilled immigrants to provide high-earning workers to pay the tax bills, say.

EdInvestor, that's income tax only, you're missing all of the other taxes, notably VAT, remember the 8% VAT rate back in 1979 (12.5% on luxury items)? How about the 15% rate introduced in that year by Geoffrey Howe along with the income tax rate cuts, or the increase to 17.5% in 1991 by Normal Lamont? How about the introduction of the new 8% VAT on domestic heating in 1994? So today "Approximately 56 per cent of consumers' spending is taxable at the Basic Rate of VAT"... which is more than twice as high as it was back in the seventies.

Here's how it went up to 2000 "The tax burden under Tony Blair's government is set to be the highest since 1966 - with the exception of the high-unemployment period in the mid Eighties. The public are paying more tax as a proportion of wealth created in Britain than under any other Government apart from during Lady Thatcher's second term":



Of course, higher taxes now are what we need for the pension and health care financing problems to come, if the money was only being put away to pay for that instead of being spent.

It was a good try, though I trust that the data I've provided has countered your lower taxes now claim sufficiently thoroughly?

EdInvestor

Many of today's taxes are discretionary - you don't have to pay them.You've also forgotten tax credits.

It's anyway quite apparent that there has been a very marked increase in prosperity over the last 20 years - especially at the bottom end of the spectrum - as a result of the restructuring of the economy.

Even house prices are more affordable when you look at mortgage payments as a per cent of income - that's why home ownership is up to 70% from less than 50% in the 1970s.

Some people find this a bit irritating, I know.

SquatNow

jamesd wrote: »

SquatNow, better to do something more that reduces the problem than leave it as it is. More on pensions and advertising for 30 year old and younger skilled immigrants to provide high-earning workers to pay the tax bills, say.

I agree, the problem is those immigtrants need high-paying skilled jobs to do... and we don't have many jobs going spare. All that's happened with the immigrants is they've flooded the labour market and pushed down wages.

The high cost of living (caused by high land prices) has forced all manufacturing jobs abroad... all we have left is a service and retail industries, provide goods and services to the british population, who pay for them with borrowed money.

EdInvestor wrote: »

It's anyway quite apparent that there has been a very marked increase in prosperity over the last 20 years - especially at the bottom end of the spectrum - as a result of the restructuring of the economy.

The increase in prosperity is rather uneven though... it's massively slanted towards the older generations. The appearence of properity in the younger generations in entirely created through them taking on huge debt, spending money they have borrowed.

EdInvestor wrote: »

Even house prices are more affordable when you look at mortgage payments as a per cent of income - that's why home ownership is up to 70% from less than 50% in the 1970s.

Mortgage payments are lower as a percentage of income for people who bought in the 70s/80s as inflation has reduced their mortgage payments to a pittance. If you're a first time buyer, house prices are the highest vs wages that they have ever been. House prices are twice as high verses wages than they were at the peak in the 80s, just before the last crash. This has been disguised though but stupidly low interest rates.

EdInvestor

SquatNow wrote: »

All that's happened with the immigrants is they've flooded the labour market and pushed down wages.

I see.None of them pay any taxes or NI, is that right?None of them eat or buy clothes or pay rent or otherwise contribute to the economy, correct?

The high cost of living (caused by high land prices) has forced all manufacturing jobs abroad.

In case you hadn't noticed low skilled manufacturing is now done in low wage economies such as China and India.Formerly it was done in other low wage economies in SE Asia.Before that in Hong Kong Taiwan and Korea and before that in Japan, startin immediately after World War 11.This has nothing whatsoever to do with high land prices of the cost of living. Highly skilled manufacturing is still done here ( eg making the machine tools which make the cars in the overseas factories) , but as a developed economy we have mainly graduated to creative industries not dependent on low -paid labour.

The increase in prosperity is rather uneven though... it's massively slanted towards the older generations.The appearence of properity in the younger generations in entirely created through them taking on huge debt, spending money they have borrowed.

Statistics please.,The average working wage is around 25k.The average pensioner income is 14k. Who's better off?

Mortgage payments are lower as a percentage of income for people who bought in the 70s/80s as inflation has reduced their mortgage payments to a pittance.

No, mortgage payments are low for everyone because interest rates are low.Young people today pay less of their disposable income on servicing their mortgage than people did in the 1970s and 80s.

Yet still they moan. :rolleyes:

Ian_W

jamesd wrote:

Here's how it went up to 2000 "The tax burden under Tony Blair's government is set to be the highest since 1966

But the Torygraph would say that - wouldn't they? The possibly more right wing, but less overtly Tory supporting, Adam Smith Institute publish a Tax Freedom Day which shows that throughout the 1980s taxes were higher than to-day, significantly so in many years [Lady T's 1st term, more than her 2nd]. You would however have to be in your 40's to remember.;)
Other than those years, since mid-70s, tax free date has been fairly consistently between the last week in May and very early June. Though I can understand younger people thinking taxes are higher - as the press keep telling them that! :rolleyes: And they have been trending higher since the 90's.
BUT taxes are certainly NOT the highest they've ever been.

Of course, higher taxes now are what we need for the pension and health care financing problems to come, if the money was only being put away to pay for that instead of being spent.

But public finances in this country [and AFAIK others] doesn't work that way, it works on a tax and spend principle which makes the claim that "you've paid for your parents pension" disingenuous - I've paid for your kids education, or your working tax credits - is just as valid! There is no pension fund but neither is there an education fund, welfare fund or war fund.
In fact one of the reasons I've seen given for large tax subscribed funds not being "public policy" is that they could distort the investment markets - whether that would be the case or not, it's something you as an investor ought to consider.
That's why I think discussing pensions in isolation from other tax and spending issues is facile. I agree that changes are needed to pensions and support the raising of ages, it won't affect me but my wife will have to wait 4 yrs longer to draw her BSP despite having paid her full pre-2010 contributions.

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.

But they hadn't in the 80's when we had massive unemployment - the number of jobs in the economy isn't controlled by the number of people we have to do them, or is it? Am I being thick here? This is where the demographics arguments don't fully stack up to me, if the jobs are available we can import more taxpayers [as now] or better still, for no other reason than economics I hasten to add, use welfare to work to remove those existing residents who are fit to work from the welfare "fund" to the taxpayer column.
And as a final point, it is getting late, how does a shortage of taxpayers fit in with plans to require kids, who don't want to, to remain at school until 18? When you quoted the previous life expectancy of pensioners at 68, don't forget most of them left school at 14 and most of my generation at 15.

SquatNow

Ian_W wrote: »

And as a final point, it is getting late, how does a shortage of taxpayers fit in with plans to require kids, who don't want to, to remain at school until 18? When you quoted the previous life expectancy of pensioners at 68, don't forget most of them left school at 14 and most of my generation at 15.

That's just a blatent attempt by the labour party to keep them off the unemployment figures!

Problem: Kids leaving school have no jobs to go to, and end up on the dole.
Solution: Pay them to stay at school forever.