View Full Version : Pensions

peter macdonald
30-Apr-07, 17:09

Considering how many final salary schemes have closed it does not give the
younger ones much encouragement does it !! Gordon tells folkies to save for their retirement and then raids the pension funds !!!

30-Apr-07, 18:39
There are several problems all mixed in here - some the government's fault, some the Conservative government's fault in the early 90's, some the employers' faults, some because of increasing life expectancy, some because of lack of education, and some because of the public's unwillingness to save instead of spend. There's a kind of "folk memory" about how in this land fit for heroes, the Welfare State would provide everything from cradle to grave and although almost everyone whines that the government can't be trusted, everyone sticks to the idea that the State pension should be the main provider of retirement income.

The lack of incentive to save for retirement is easy - because of Brown's tinkering and addiction to means testing, most pensioners receiving the State pension are entitled to an additional payment under the Minimum Income Guarantee (now Pension Credits) system to get them to 120 / week or 180 a week for couples. So a single person gets about 6200 a year from the State for not saving at all. If you save into a pension (depending on your amount saved) you'll not qualify for the MIG because you have assets, so you'll get a State Pension of 87 / week (plus your own pension (4500 / year). To earn the missing 1700 a year you'll need a pension fund of very roughly 35000 - and the average fund of UK workers is more like 25000.

There's a long and complicated explanation I won't bore you with because there are one or two intellectual pygmies on the Org, regrettably, who enjoy PM-ing me to tell me what a Googling know-all I am but even they should be able to figure out the arithmetic from that one - why save to a pension if you'll get it for free? Well, they'd figure it out if their attention spans and reading skills allowed them to get this far.

It can be argued that the pension rot started with the when in the late 80's many companies had massive surpluses in their pension funds and in fact, regularly paid huge sums in because it came off their profits and so reduced their tax bill. The Conservatives spotted the tax evasion (let's not mince words) and said that companies would have their pension fund surpluses taxed as undeclared profit - which is actually not unreasonable, or wasn't at the time. So the companies all gave themselves and very often their staff payment holidays to get rid of the surpluses - and then the EMU crisis in 1992 and a few years of Stock Market turmoil took all the fat off them.

Stock Markets picked up again courtesy of low interest rates post-EMU and pensions did quite nicely again - that's the very positive picture Brown the Nail Nibbler inherited. Seeing that, he immediately removed some tax reliefs which were exclusive to pensions and reduced their income by 5 billion a year, since compounded because that 5 billion was money that now couldn't earn money for your pension. Nnxt year, another 5 billion - he's now had almost 100 billion out of pension funds in total since 1997 and what do we have to show for it? Same crappy policing, same crappy NHS, same crappy roads, same underfunded military, same crappy care for the elderly and needy - but oh, wait: MP's and government ministers have a special scheme funded by the taxpayer which gives then 1/40th of their final pay for every year of service - PLUS tax-free cash. You in the public sector get 1/80th plus tax-free cash; the poverty struck in the private sector (me) get a return on what they saved in a pension plan, LESS tax-free cash taken.

Things really bit when the Stock Markets went crash in 2001. In the most stunning display of complete Government stupidity on record, the Financial Services Authority went to pension companies and told them that shares are "too risky" for pension funds to be in and they must rebalance their investments with fewer shares and more government stocks (or "gilts") which give a fixed yield. So at the bottom of the Stock Market crash, the companies had to sell their shares to realise generally huge losses, and then invest the money in gilts - so the price of gilts went up as money chased them, and the fixed yield was thus worth less.....

If a pension company had acted as stupidly they'd be put out of business by the FSA.

Just after all the shares were sold, the stock markets recovered - but your private sector pension and mine was already screwed, locked into low and fixed-return investments while share prices went bonkers. This is also one of the main reasons (and one you don't hear about very often) why your endowment policy on your mortgage stayed lousy and din't recover dramatically post-2003.

Then of course, people live longer these days so your pension savings need to be greater to sustain you for longer - unless you're an MP, or minister, or work in the public sector, when the taxpayer will sustain you in the comfort to which you've become accustomed! Any shortfalls in public sector schemes don't matter; we'll all put our hands in our pockets and chip in. And of course we'll carry on letting the police retire at around 50, with 30 years service, at the public expense, and firemen..... you'll never see a poor policeman in retirement. Senior-ish officers on 30k a year pensions, with 120k in the bank tax free and a nice little earner of maybe 25k working for the local authority or maybe the "justice" system - and they're in the pension scheme there, too!

It's a game, right enough. But no politician is brave enough to get hold of it and reform it. There's certainly no interest amongst MPs in giving themselves a private-sector style pension. It's all rather reminiscent of the old Politburo privileges like reserving the centre lane of the roads into Moscow for Politburo members' use, because their time was more valuable than anyone else's. George Orwell, where are you in our hour of need?

All animals are equal..... but politicians are more equal than others.

Sorry it's a long post. It's a subject I'm passionate about. If more people were passionate about such things we'd maybe get a government worth having.

30-Apr-07, 23:31
The problem goes back as far as the 1970s when "Wage Related Benefits" (including Pensions) were introduced. The politicians were informed when they introduced the systems that they would eventually be unsustainable.

The problem was that they were a good "Vote Catcher" and also provided a good explanation for increasing contributions with the promise of "jam tomorrow". The attitude of those introducing the system was that by the time the problems surfaced they would be long gone so it wouldn't be their problem and others would have to carry the can for them.

Now those who have succeeded them throw up their hands in shock as if all this has come as some sort of surprise.
My astutely analytical mind tells me that life-expectancy has been increasing for many decades, a detail that seems, somehow, to have been overlooked by our leaders until now.
A further minor detail which seems to have been completely missed by our wonderful leaders is that 60 years in the case of girls and 65 years in the case of males (I know it's changed fairly recently due to the equality laws) after their birth they reach retirement age.
I'm sure that most of you can add 65 years to any date and arrive at the right answer, a feat which seems to be totally beyond most of our politicians.

Ten years ago our Company/Private Pensions Schemes were, in the main, amongst the best in the World. The Government, seeing all the money they held, decided that they should make a grab for it so they could boast about having found ways to waste it.
Grabbing all those billions being sat on by the "Bloated" Pension Companies made a good Sound Bite.

The bit they failed to mention was that all those billions were made up of the millions of smaller amounts that normal people had worked hard to save for their futures.
Under the pretence of fleecing the Fat Cats and Redistributing Wealth, they were, in fact, stealing the money that people like you and I had been saving for our old age.