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The reality of the Pension Debt (To encourage discussion)
Comments
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You don't need a First Class Hons in applied cynicism to come to that conclusion.That's just a blatent attempt by the labour party to keep them off the unemployment figures!
But it wasn't what I asked.
You ought to get out more Ed. There are plenty of younger people who don't think the world owes them a living, don't believe everything was easier or cheaper in the past and are prepared to graft for what they want.EdInvestor wrote:Yet still they moan. :rolleyes:
Still, I can understand why you might not think so!
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You ought to get out more Ed. There are plenty of younger people who don't think the world owes them a living, don't believe everything was easier or cheaper in the past and are prepared to graft for what they want.
I know there are: their presence is quite obvious all about us and good luck to them
. They are the people who are far too busy getting on with it to sit around bleating on the internet like SquatNow and friends who is just miffed because they failed to buy a property at the right time and/or bought one and then sold it in the hope of making a killing in a house price crash.
Such speculators are IMHO a waste of space..Trying to keep it simple...0 -
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
That's because they are reporting based on different figures, the Chantrey Vellacott study reported in the Telegraph is a percentage of GDP while the Adam Smith Institute one is reported as a percentage of their "Net National Income" which adds extra foreign business earnings to the calculation. So if foreign business earnings increase faster than wages, as I think they have been, that presumably reduces the tax as a percentage of NNI.
Neither is actually the tax on an individual, though, so both are really flawed for the purpose here, which is children subsidising parents more than the parents are subsidising the grandparents. I should really go looking for personal taxation numbers.
Back to the Adam Smith Institute numbers. They say that (.DOC file) "one-half of one percent is enough to move Tax Freedom Day by up to 3½ days in either direction" and that the 2007 tax freedom day is 1 June, ignoring government borrowing and using estimates bassed on 206 data and 2007 budget projections. 12 June if borrowing is included, as they say it should be.
So, the latest tax freedom day in the 1980s was 20 June in 1982. That's equivalent to a 2.7% higher tax rate, due mostly to the high unemployment at the time, presumably.
But EdInvestor wrote "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", so lets do that, according to the Adam Smith Institute numbers. The average tax free day from 1970 to 1989 inclusive is 2 June. That's 1 day more than 2007, equivalent to ½/3½% or 0.14%.
That's higher, though, so on Adam Smith Institute numbers EdInvestor was just right that taxes were higher.
But the 1970s and 1980s were the last 20 working years of those who are retired today. This discussion is more about the baby boomers who are starting to retire now and who will be paying for them.
So, lets look at the Adam Smith Institute average for the 20 years from 1988 to 2007 inclusive, the rates that were apparently so high that it wasn't practical for the baby boomers to provide for themselves. That average is 30 May, two days or 0.28% lower than today and 0.43% lower than the 70s and 80s average.
Nice to be paying less tax than the parents, even if only 0.43% less, but maybe some of that could have been used to provide for some of the pension the baby boomers will be getting instead of leaving it to the children?[Lady T's 1st term, more than her 2nd]. You would however have to be in your 40's to remember.;)
I'm a baby boomer, late vintage. The ship I was on in 1982 was confiscated out from under me to pay a visit to the Falkland Islands. That educational cruise was planned by my mother to forget the death of my father that year. Still, at least his former boat got to fly the Jolly Roger when it returned to port later that year. I don't remember the Thatcher years fondly, though not for this reason: years of inner city riots, mass strikes, unemployment and such aren't great to live through.BUT taxes are certainly NOT the highest they've ever been.
Agreed. Borrowing is also a factor - and the changing national debt numbers have been interesting (but even more so in the US)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.
I'd be interesting in any data suggesting that it's distorted the US market, or that the relatively large sums invested by company pensions had done so for the UK market. If anything, if we want stability, we should presumably welcome invested extra state pensions to replace some of the money that the decline in company funds is presumably taking from the markets.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.
Yes, the whole picture is really what matters, for example, health care improvements add to the costs, both in longer life and increased care costs. And I'm one of the non-female beneficiaries of the change to 30 years contributions for a full basic state pension.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.
The economy creates the jobs, the Thatcher years produced high unemployment due to mass structural changes in the economy. Today unemployment is extremely low, with business leaders complaining that there's too much competition for workers, risking wage increases due to competition. Subtract a few million immigrants from well under a million unemployed and we'd have a significant shortage and labor bidding war, or slower growth as shortage of employees limited it.
Skilled immigrants ideally increase the percentage of jobs that are exporting and make everyone better off. Most of my own work is exported to the US. If there was a skilled immigrant who was capable of doing the work my employer wants to hire the person. Whatever country they are in - but I'd rather they were in the UK and paying UK taxes.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.
Gainful occupation and hopefully acquiring more skills, instead of unemployed and potentially on the streets causing trouble.0 -
But the 1970s and 1980s were the last 20 working years of those who are retired today. This discussion is more about the baby boomers who are starting to retire now and who will be paying for them.So, lets look at the Adam Smith Institute average for the 20 years from 1988 to 2007 inclusive, the rates that were apparently so high that it wasn't practical for the baby boomers to provide for themselves. !/quote]
I don't understand why you think the people who are coming up to retirement today haven't provided for themselves.That's not correct. The babyboomer generation benefit from being the first group which mostly had access to pensions with company contributions (a post WW2 phenomenon) and the ability to buy their own home (ditto).
They were the first fully to benefit from free medical treatment as children, such that the family coffers weren't decimated by a serious illness suffered by one member, thus condemning all the rest to stop their education early. They were the first in which women were able to aspire to serious professional and business careers.
This upcoming generation of pensioners is likely to be the richest in history.It is not them that will be dependant on youth: rather, it is the other way round.You can already see this as children queue up for a deposit to buy a property, demand a funded gap year, refuse to move out of the family home as it's 'too expensive' to be buy (or rent), eye the parents accumulated weath (designed to fund their retirement) as their 'inheritance' etc. :rolleyes:
It's hardly surprising that the parents find the only solution is to flee to Spain.Trying to keep it simple...0 -
Except the parents also expect free NHS care, a state pension, council tax allowance, etc etc.Bankruptcy isn't the worst that can happen to you. The worst that can happen is your forced to live the rest of your life in abject poverty trying to repay the debts.0
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- Paying NI no longer entitles you to a pension.
- State Pension will be means tested from now on. Cash from downsizing will almost certainly be included in the means testing.
- end quote from Squat Now)
I dont know whether the Govt has actually put my NI contributions to one side for my State Pension or no - but that is what I have paid in for and I dont expect to have paid for "thin air" - so, regardless of whether its actually there "in the bank" or no, I will take it because its rightfully mine and I will need it - and you will expect to do the same come your time whatever you say.0 -
EdInvestor wrote: »I don't understand why you think the people who are coming up to retirement today haven't provided for themselves.That's not correct. The babyboomer generation benefit from being the first group which mostly had access to pensions with company contributions (a post WW2 phenomenon) and the ability to buy their own home (ditto).
It's because I'm looking at the state pensions and state benefits. That's the bit where the children will have to fund the increases for the parents.
Employment-linked pensions and personal pensions are great: already paid for by investments, so no added burden on anyone as long as the company stays in business.0 -
This is not money for nothing - its money for something. I have paid for my State Pension
You haven't paid even one penny for your own state pension.and worked for my employment pension. One doesnt pay a shop for goods and then have to walk out of the shop without those goods - pay out the money = get the goods. Same with pension - I've worked for/paid NI stamps for it = so I will walk out the door at retirement and take what I have paid for (but only what I have paid for myself - I dont expect to have what anyone else has paid for and wouldnt be given it anyway).
Your basic state pension contributions weren't being put aside for you. They were being taken from you and used to pay for the person ahead of you at the retirement checkout. That works as long as the bills are the same.
Now there's a problem, though: the bills are going up because the pension payments are going up and there are fewer people to pay for them because the next generation is smaller. So the people after you in the queue are going to get bigger bills for you than you got for the person in front of you.
So you are in effect walking out with goods you haven't paid for. Even if you'd never knowingly do that if you knew that it was happening.I dont know whether the Govt has actually put my NI contributions to one side for my State Pension or no - but that is what I have paid in for and I dont expect to have paid for "thin air" - so, regardless of whether its actually there "in the bank" or no, I will take it because its rightfully mine and I will need it - and you will expect to do the same come your time whatever you say.
Your payments were used to tick a box saying you'd paid that year. Then the money was used to pay for the pensions of the people who were retired at the time you paid - just a tax, like any other, except for that ticked box. Nothing went into any form of pot to pay for your own pension.
We'll all take the money but what we can do is tell the government to stop making the people after us pay the increased bill for increases in future pension payments. That way there's some hope that the smaller generation after the baby boomers won't rebel at being asked to pay much more for their parents pensions than the parents paid for their own parents (who were in a far smaller retired generation).
The ticked box is what SquatNow forgot: that undertaking that if the government takes the money from you to pay for those who are retired now, it'll make the generations after you pay for you when you retire. It was a good plan when the average man lived just three years after retiring. Not so good when that's now 23 years and the bill is much higher and going to be spread over fewer people once the baby boomers are retired.0 -
Now there's a problem, though: the bills are going up because the pension payments are going up and there are fewer people to pay for them because the next generation is smaller.
I am really surprised jamesd that you (not a person unused to complexity) have failed to look further than the simplest dependency ratio. The idea that "there are more of them receiving benefits than there are of us paying tax" is far too simplistic).
Things it ignores:
a)The fact that many of the young generation don't work, are indeed in receipt of benefits themselves
b)That many of the retired generation pay taxes on their pension income, and thus self fund at least part of their state benefits
c)That the upcoming retiring generation are comparatively well off and thus will contribute more to the economy ( growth,jobs) through their consumption than the pensioners of today, especially as the economy is now mature and consumption/services based
e)That the young generation is being boosted by tax-paying immigrants
f) That the retired genetration is in many cases continuing with part time or freelance productive work beyong state retirement age, and thus paying more taxes than otherwise
g) That the number of very poor pensioners receiving the full range of benefits is forecast to go down.
There will be a small increase in the burden to be sure, but it is not expected to place any stress on the economy or on the younger generation.
http://www.mckinsey.com/mgi/publications/demographics/uk.aspTrying to keep it simple...0 -
EdInvestor, have you, like me, read the reports of the Pensions Commission? How about the December 2007 Pensions Bill and its accompanying Pensions Reform Factsheet? The dependency ratio and the increased benefits are a good summary of the problem: fewer people paying for higher benefits for more people than before.
a) A higher percentage of young people work than before: unemployment is lower than it generally has been and it's now routine for women to work.
b) Yes, those taxes are helpful. Do you think that the estimated 15 million pensioners paying those taxes will pay the 33 billion annual bill in 2030 of linking the state pension to wages instead of inflation, 2,200 per pensioner? How about the 121 billion, 8,066 per pensioner, for the other basic benefits (basic state pension, additional state pension, pension credit, other pension benefits, housing and council tax benefits and attendance and disability living allowances)? Numbers are 2007 Pounds.
c) Most of the money pensioners have is either from taxes including NI or if in work or personal pension schemes is locked up in investments, with only about 5-7% of it being returned to the economy each year from those who stay. Still, returning some of the money to the economy is good. Now, what about those who retire to Spain and take their money from the UK there - both the tax money paying the state pensions and their private pensions?
e) In 2006 there were 11.3 million pensioners, with the expected increase being 3.7 million by 2031. There aren't the 8.4 million immigrants it would take to get to even a 50% dependency ratio. Still more immigrants to be in the work force are a good thing and it's something to encourage.
f) Working longer is good.
g1) Here are the expected changes in the Pension Credit Standard Minimum guarantee, in 2007 prices:
2010: before 119, after 124
2020: before 119, after 151
2030: before 119, after 184
2040: before 119, after 224
2050: before 119, after 273
That should make it obvious that the benefit levels are being hugely increased.
g2) To reduce the number of pensioners getting these increased Pension Credit payments, the plan is to take more of the NI from average and high earners and use it to produce an entitlement (not invested, paid for by taxes on the children and grandchildren) to flat rate S2P that increases the pensions for low earners, at the expense of decreasing the earnings-related pension the average and higher earners get. I suppose changing the name of what they get from "Pension Credit" to "State Pension" means they aren't getting it as "benefits" but it's hardly a useful claim when the extra money still has to be found. Did read look at the Pensions Reform Factsheet that I referred you to earlier? See Figure 3 on page 7.
Your reference to the UK summary page of the January 2005 McKinsey Institute report "The Coming Demographic Deficit: How Aging Populations Will Reduce Global Savings" is hardly helpful. It's not even talking about pensions, but about impact of demographic changes on savings levels. It also predates both the report of the Pensions Commission and the Pension Bill that introduce the changes, so unless they are psychic it seems not to be addressing these changes at all.
Please read the Pensions Reform Factsheet if you haven't already done so.0
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