Cassandra on Pensions
Oct 28, 2017Posted by on
This week-on-Facebook: As a retired civil servant, though not in the same league as Sir Robert (Tuesday’s article), I have long thought that the whole pensions system — particularly that of public sector pensions — was a train wreck waiting to happen. Successive UK government consistently deferred this forthcoming train wreck in the hope that it will not happen while they are in office, perhaps even hoping for deus ex machina.
The attitude of politicians to the pensions crisis indicates their disingenuousness towards the general public and self-interest in protecting their own sinecures. The New Labour administration’s action on seeking legal advice to default on paying public sector pensions points the political awareness of the pensions issue. And yet the public sector employee contributions continue to be off the books, the National Insurance Fund continues to be raided by successive governments , as do are private sector pension arrangements and some privatised industry pension funds. In this pensions debacle politicians invoke morality as a cover for their fiscal ineptitude and absolve themselves from any misfeasance.
A pension is not necessarily what people think it is, and it most certainly isn’t only for old people. A personal pension is fundamentally a simple product: It is just a tax-free pot of cash you, your employer (and sometimes the Government) pays into, as a way of saving up for your retirement. Pension need-to-knows
Monday — Death of retirement: Can the UK afford the state pension? The pension paid more than a century later is very different. Today nearly 13 million people – men over the age of 65 and women currently over the age of 64 – receive the state pension. A full one is around £160 a week (£8,300 a year) and one in seven pensioners – close on two million people – survive on nothing else.
Tuesday — Work and Pensions chief to retire at 61 with £1.8m pension pot: Sir Robert Devereux will reportedly enjoy a £1.8million pension pot when he calls time on his career – giving him an immediate lump sum of £245,000 with a further £85,000 following every year, a hefty amount that trounces the average UK national salary.
Wednesday — New studies show UK pension deficits continuing to increase: The combined pension liabilities of the companies listed on the FTSE 100 index increased by £95 billion to reach £681bn by the end of last year, even though only 53 of those companies are continuing to provide DB benefits to as little as 1% of their total workforce. The position is similar across the FTSE 350, where the aggregate pension deficit increased by £12bn to reach £62bn last year.
Thursday — We should all vote for MPs’ pensions to be reformed: I am surprised there hasn’t been widespread uproar about the issue of MPs’ pensions, but it is quite hard to find the information.
Friday — A pensions chicken comes home to roost: The temptation is to dismiss this as a long-term problem and hope that a deus ex machina, a sharp rise in bond yields or economic growth, will solve the problem. But eventually the bill will come due; we need to be a bit more far-sighted than your average chicken.
Evaluating the government balance sheet — pensions (pdf): The government’s main concern is to meet its policy to provide financially for people in retirement while ensuring that pensions are affordable in the long term. Significant and continued increases in the cost of pensions would require the government to reduce spending in other areas; increase its income through higher taxation; or increase borrowing, to continue to support retirement incomes on the same basis.
UK state pensions (pdf): Most public pension systems operate on a pay-as-you-go basis. This means that pensions paid to current pensioners are financed from contributions paid by current workers. This creates potential problems when the number of pensioners rises relative to the numbers of workers. To remain in balance the pension system has to raise more contributions from current workers, or pay less to pensioners.
Measuring the effect of pension deficit payments on workers’ wages: This paper presents the first empirical testing of what has happened over this period. It identifies a strongly significant negative correlation at the firm level between deficit payments and employee pay levels. It notes that the effect is stronger for current members of the pension scheme, but finds that it is present even among non-members when looking at the bottom end of the pay distribution.
Global Pension Time Bomb — Funding Gap Set to Dwarf World GDP (pdf): To alleviate the looming crisis, governments must address the gaps in access to the pensions system and ageing populations as they are the key sources of the widening pension gap. These are the main findings of the new World Economic Forum report, which provides country-specific insights into the challenges being faced at a global level and potential solutions.