My response to "Tax, spending and pensions"

As a pragmatarian, I find it useful to look at facts, figures and logic before deciding on policies. While this post is quite correct in saying that the government wastes about £100 billion a year (or one-fifth of state spending) and calling for a rabid simplification of the tax code, it gets a bit rocky towards the end:

1. "...while there are currently four potential workers to support every pensioner, by 2050 there'll only be two."

That's an irrelevant factoid. What is relevant is the number of productive workers-to-everybody else. There are currently rather less than 30 million productive workers supporting a population of over 60 million (incl. pensioners, quangocrats, children, students, unemployed, stay-at-home parents etc). Sure, we'll have more older people in future, but by the same token we'll have fewer children, who cost just as much as a pensioner (child benefits plus education = old age benefits plus higher NHS costs). As long as half, or nearly half, the population is in productive employment, we'll be fine - we can easily achieve that by cutting taxes and regulations; scrapping the quangocracy; reducing means testing of benefits and nudging up the pension age by one month every year.

2. "I'd follow Chile's lead and introduce compulsory private savings accounts, in place of national insurance contributions."

National Insurance is just a tax of course. So if you cut taxes (which are used to pay for current pensions), would you a) increase other taxes to pay for current pensions (which defeats the object), or b) cut current pensions (which is a political non-starter)?

3. What are these compulsory savings accounts going to invest in? Shares? UK plc only pays about £40 billion in dividends annually, so even if all pensioners owned all shares, the total payout would be about half the state pension plus other bits and pieces. So with a large pool of money chasing a small number of shares, this would just artificially drive up share prices.

Surely, the big problems with existing old age benefits are: the means-testing (which discourages lower earners from saving); the sex discrimination (women retire earlier but live longer; men receive higher S2P/SERPS so women get bonus years for 'caring responsibilities' and more means-tested benefits which more or less makes up the gap); the massive tax breaks for pension contributions (in the order of £50 billion per annum, which are of necessity regressive, thus increasing the tax burden on lower earners making it even harder for them to save, and the bulk of which are swallowed by the pensions 'industry' anyway); and the investment risk associated with pension savings.

How about, er, accepting the fact that we commit 5% of GDP to taxpayer-funded old age pensions* (as we do now) and dishing it out as a flat-rate non-means tested Citizen's Pension to all residents over 65 + 1 month per year, which at present would work out at about £140 each per week? Scrapping tax breaks for pensions would enable further significant tax cuts (like scrapping VAT entirely) and with a PAYGO system, there is absolutely no investment risk.

What's not to like?

* And half as much again for public sector pensions, see in the comments.