State Pension, or just another Benefit?

sevenhills

penners324 said:

The sooner income tax and ni are merged together the easier it will be for everyone 

Or privatise the state pension and make contributions compulsory?

molerat

Silvertabby said:

molerat said:

penners324 said:

The sooner income tax and ni are merged together the easier it will be for everyone 

Ain't gonna happen.

What are the chances of any political party surviving if they tell pensioners they are going to increase the amount of tax they pay by 60% ?

Wasn't this considered some years ago, but discounted for this very reason?

I suppose the only way round it would be to have different tax rates for salaries etc and pensions - cue more complications.

Yep, let's add extra complications to the already over complicated system which will actually make no effective difference.  Just change the name of  NI to Employment Tax, job done

But the way NI interacts with benefits, not just SP, would mean a whole raft of other legal changes. Something to put in the "too difficult" box.

Stubod

QrizB said:

It really does.

My two parents, in their 70s, are living a happy and fulfilling life on about £14k pa combined income.

Take a look at the "how much to live on" thread for more examples of people living quite happily on the NSP or less.
https://forums.moneysavingexpert.com/discussion/6228191/how-much-to-live-on

On this forum there's @Sea_Shell who has retired early and seems to be having a lovely time with their other half on £16k pa, less than two NSPs.

My parents also lived off just their state pensions, (Mom only got about half), so probably not much more than £12k, but probably "survived" rather than "lived".... 

xylophone

State Pension is a benefit.  See Government response in below.


https://petition.parliament.uk/archived/petitions/121267



Who paid for those that first received it then?  

If really interested

https://ifs.org.uk/sites/default/files/output_url_files/bn105.pdf

The history of the UK pension system is the story of a mainly non-contributory system, periodically tempted by the higher replacement rate of social insurance schemes, but always frightened once the costs become apparent. Recent reforms have tilted the system further in the direction of a universal flat-rate benefit, abandoning any social insurance design. This confirms that the main objective of the UK state pension system is to reduce poverty at old age. These flat-rate pensions will also reduce the reliance of the system on means-tested benefits, somewhat reinforcing the Beveridgean design of the system. Given these clarifications, it is unfortunate that the latest reforms have still sought to maintain much of the complex structure of the pre-existing system instead of reforming and rationalising it. However, once issues of transition have been dealt with, there may yet be scope for simplifying the presentation of the rules. 

https://www.ons.gov.uk/aboutus/transparencyandgovernance/freedomofinformationfoi/statepensionfunds

The UK State Pension is unfunded, which means that its obligations are not underpinned by an actual fund or funds. Such schemes are often referred to as “Pay As You Go” (PAYG). The pension payments made by the government for unfunded pensions are financed on an ongoing basis from National Insurance contributions and general taxation.

Universidad

xylophone said:

State Pension is a benefit.  See Government response in below.
https://petition.parliament.uk/archived/petitions/121267

This government response describes unfunded defined benefits scheme pensions as "benefits", also. Which is fine, of course. But the point of the thread is about whether the state pension can be relied on to remain in place.

Whether something is a "benefit" or not is largely irrelevant to this question.

There would be bloody murder if the government took away someone's NHS pension because it is "only a benefit".

I don't think the state pension is far behind that in terms of its potential for social and political disruption.

The state pension is definitionally a benefit. However it is not "just another benefit", per the subject of the thread.

JoeCrystal

sevenhills said:

JoeCrystal said:

I think there are ways. One way would to increase the personal allowance enough just for people who are at or over SPA. But ultimately, all taxes are bound to change eventually.

We all pay taxes and so we should, without taxes we would have poor schools, roads, NHS and public transport!

Quite so! Especially I feel that we are not paying enough in these days!

Linton

sevenhills said:

penners324 said:

The sooner income tax and ni are merged together the easier it will be for everyone 

Or privatise the state pension and make contributions compulsory?

1) Paying for an inflation linked penson must be much more expensive for a private company than the state. Government income is largely inflation linked as taxes are mostly % based.  Pension companies can only provide guaranteed inflation linked income by the use of government guaranted IL bonds. So the Government pays anyway. plus there will be a lot more admin administering the massive amounts of money involved.

2)  There there would need to be government backed guarantees to protect the pensions should a privatised SP provider go bust.

3) I dont know the wider economic impact but it could be massive.  The total assets required to provide a privatised SP are something of the order of perhaps £100K average pot size per person X number of people (working and retired) , say 30M,  giving £3T, which is of a similar size to the current total Government debt.  Could the bond market sustain this?  There wont be enough IL bonds available.

hugheskevi

Linton said:

sevenhills said:

penners324 said:

The sooner income tax and ni are merged together the easier it will be for everyone 

Or privatise the state pension and make contributions compulsory?

1) Paying for an inflation linked penson must be much more expensive for a private company than the state. Government income is largely inflation linked as taxes are mostly % based.  Pension companies can only provide guaranteed inflation linked income by the use of government guaranted IL bonds. So the Government pays anyway. plus there will be a lot more admin administering the massive amounts of money involved.

2)  There there would need to be government backed guarantees to protect the pensions should a privatised SP provider go bust.

3) I dont know the wider economic impact but it could be massive.  The total assets required to provide a privatised SP are something of the order of perhaps £100K average pot size per person X number of people (working and retired) , say 30M,  giving £3T, which is of a similar size to the current total Government debt.  Could the bond market sustain this?  There wont be enough IL bonds available.

There is also a wider economic efficiency point to be considered.

One way or another, pensioners have to have resources allocated to them. Broadly, pensioners are unproductive (economically speaking, although things like child-minding, volunteering, or even working by some, do have economic value) and so require a transfer of resources produced by the active members of the economy (ie workers).

This can be done in several ways - if you use private means, those resources will be produced from the profits and dividends of companies. If you use State means, it will be through taxation. However you do it, the State will need to provide a floor, given society doesn't wish to have its elderly destitute, even if their position is entirely due to their own fecklessness. That can then lead to incentive problems caused by means-testing if your goal is to minimise State expenditure on pensions. In the extreme, this then leads to mandatory private pension savings to overcome the incentive problem, which either leads to inefficiencies as some will be forced to save when they do not need to, or complexities as you introduce tests such as minimum assets levels to avoid compulsion (somewhat akin to the complexities which existed prior to pension freedoms if you wished to access DC pensions flexibly).

Analysis (eg the Pension Commission reports) has shown that using taxation as a means of redistribution is far more efficient than the costs involved in doing it via private means. The State is considerably more efficient at this than even Defined Benefit schemes in terms of operating costs, and significantly more efficient than the DC arrangements the UK has ended up with, where everyone has individual accounts and investments both in accumulation and decumulation, which is probably among the least efficient pension arrangement possible for the country as a whole but nobody can agree on a different system.

Nonetheless, there is a cost to taxation as it distorts incentives, and given govts willingness to increase these distortions (eg Personal Allowance taper, Child Benefit withdrawal, etc) these costs might be quite high. The best example in recent times of this was the Lifetime Allowance, which appears to have distorted incentives so much that large numbers of skilled professionals chose to be unproductive rather than work, at a very large economic cost.

So from an economic efficiency perspective, having a universal (or near universal) State Pension set around the minimum level required and funded from taxation is very efficient. It could be extended if that was viewed as an optimal pension system, with the obvious change to be making it earnings-related but the direction of travel is completely the opposite to this as we have moved from an earnings-related system to a more flat-rate system when S2P reduced the degree of earnings-relation, and then to a largely flat-rate system through single-tier pension. Cutting the role of the State back further and replacing it with a less efficient mechanism to provide what society considers an essential resource transfer would be a very false economy. That transfer has to come from somewhere, and just because it could be done privately does not mean it comes without a cost to the economy.

There could be an argument that investing in overseas assets solves the problem - then the resources to transfer to pensioners come from a different society. This might have been quite attractive if many years ago a sovereign wealth fund had been established to do this, when our economic support ratios were far more favourable than they are today. Perhaps it might still be appropriate today - but again the direction of travel has been away from large centralised funds (ie DB pensions) and toward individual accounts. Having some sort of separate govt fund doesn't appear attractive when there is a large national debt, as then the govt would be effectively borrowing to fund overseas investment which would not appear very prudent and it would be hard to manage risks (and I am not sure the UK public would trust the govt to manage a multi-billion/trillion overseas investment portfolio).

Universidad

hugheskevi said:

However you do it, the State will need to provide a floor, given society doesn't wish to have its elderly destitute

This is absolutely it, in a nutshell. Maybe the state pension is expensive but, as with healthcare, these are costs the country as a whole pays regardless. So the question is really "what is the most efficient way to pay these costs"? 

When people talk about a world in which healthcare is not provided, or in which pensioners are left destitute, I think they haven't grasped how different such a world would be to the one that we know.

Such outcomes are not impossible, per se, but they speak of a world impossible to plan for, and not much worth living in.

ewaste

Well written and informed comments by the regular posters on the board, it's been enjoyable to read. 

Unfortunately as has been highlighted the UK has been travelling in essentially the wrong direction, heading away from the efficiencies of collective provision.

Efficiency doesn't matter when profit and individual gain has been a primary motivation among politicians and their voters for decades now. With an ageing population that's unlikely to change, intergenerational inequalities are deeply entrenched as are the voting intentions. 

Shareholder 'value' has triumphed over inward investment in businesses and employees which could partly explain the productivity issues. 

Who knows we might see some collection provision and marginal efficiency return if CDC ever gets off the ground. Although from what I've seen without age related accrual rates or other mechanisms in place such schemes may well continue the present inequalities in provision.