Exhibit One, from The Daily Mail:
The number of private sector workers with a company pension has fallen to its lowest level since the Fifties. Of the total private sector workforce of 23.1million, only 3.3million – a paltry 14 per cent – are in a company scheme. This contrasts starkly with the public sector, where almost nine in ten will receive a gold-plated pension. (1)
Joanne Segars, chief executive of the National Association of Pension Funds, warned that Britain’s ageing society is on ‘a collision course with its own retirement’ as it fails to save enough. (2)
The basic state pension is currently worth a little over £100 a week, (3) although many are not eligible to claim the full amount. The typical public sector worker enjoys a pension of £7,841 a year, or about £150 a week. (4) If a private sector worker happens to be in the minority that gets a company pension, the average payout is about £1,300 a year – just £25 a week.
1) I'll return to these factoids in points (5) and (7) below.
2) Vested interest, irrelevant.
3) Lie. There's been an outbreak of commonsense, and the current government is going to replace a whole mish-mash of taxpayer-funded old age pensions and benefits with a flat rate Citizen's Pension of about £150, as well as harmonising pension age for men and women. Which is what I was recommending all along.
4) Aha! The magic figure of £150 a week again. If the government plays its cards right, what it could do is follow through my proposals to their logical conclusion and treat public sector pensions as just another taxpayer-funded pension, i.e. you get the higher of [whatever your weekly taxpayer funded income would have been under the existing rules] and £150 a week, which would be an enormous cost saving without allowing too many people to end up in poverty.
Exhibit Two, from The Guardian:
Lord Hutton of Furness will warn of a "serious" risk of a mass exodus from the local government pension scheme – which is funded and has 3.5 million members – if contributions are raised too high and no other compensation is provided... (5)
Ministers have acknowledged the risk of the welfare system being left to pick up the pieces (6) after a mass opt-out from public sector pensions.
5) If the employee contributions are set 'too low' relative to potential benefits, then everybody will opt in; if nearly all public sector employees who are eligible (not all of them are) opt in, then clearly the employee contributions are much 'too low'. I'd guess that if half opt in and half opt out, then the terms are 'about right'.
6) What 'welfare system'? Why do authoritarians on left and right constantly wail on about "encouraging people to save to ease the burden on the welfare state"? Are they completely stupid, badly informed, lazy or corrupt?
If everybody gets their Citizen's Pension (or existing State Pension + public sector pension) then we don't need any more welfare on top of that, do we? The total cost of the Citizen's Pension would be about £75 billion a year (i.e five per cent of GDP, seems fair enough) as against the cost of tax/NIC breaks for private pensions saving of about £43 billion and implied taxpayer subsidy to unfunded public sector pensions of about £30 billion.
Out of these two items of expenditure, which do you think does more to alleviate poverty in old age? And for comparison, the entire cost of the other old-age related benefits (primarily Pensions Credit and Council Tax Benefit) is only about £20 billion a year, it's chicken feed, so this is spending a pound to save a penny.
Exhibit Three, from The Telegraph:
The funding gap faced by local government pension schemes in England has grown to £71.5bn, (7) new research has revealed, despite a rally in equity markets boosting returns on investments.
7) Remember that this is like a 'funded' (i.e. slightly underfunded) company pension scheme, local governments actually take the contributions and invest them in stuff. The article suggests that we can increase the £71.5 billion by £10 or £15 billion, call it £80 billion all in. Right. £80 billion deficit divided by about 4 million members is a shortfall of about £20,000 each.
Compare and contrast with pension schemes in the private sector, which had a deficit of about £148 billion a year ago and £79 billion now (from here). Take a mid figure of £114 billion and divide by 3.3 million (from (1) above), gives you a deficit per member of £34,000.
So local government is doing pretty well, by comparison.
No doubt some mal-informed commenter will mention 'Gordon Brown's pensions raid', which, as much as I enjoy(ed) Brown-bashing, is yet another stupid myth.
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Please note: unfunded civil services schemes are a completely different topic, these are pure and utter complete fraud and extortion.
Thursday, 23 June 2011
Pensions myths and other assorted stupidity
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25 comments:
I do so enjoy these little analyses. But how do you find the time to do them? Do you have a life? Really, I worry, should you not get out more.
FYI I am having a bad week with grumpiness about stuff like this. It's everywhere still. How the bloody Hell are we ever going to get out of this mess?
L, I draft them in my head on the way to work and then bash them out. And we are probably never going to get out of this mess, we will struggle along on life-support for the foreseeable.
Mark, [2] might be a vested interest but it doesn't alter the coming crisis, already started. In the end, whose fault it was is largely irrelevant against what's going down.
JH, what crisis? Which crisis?
Paying everybody over age 65 a flat rate CP of £150 a week costs about 5% of GDP. How is that a 'crisis'? We can argue about the precise rate, or retirement age etc. and tweak this up or down, but this is something about which I am 'intensely relaxed'.
It's the other 5% of GDP thrown away as gold plated pensions for civil servants and subsidies to insurance companies that irritate me.
I enjoy these analyses too. I also like 'intensely relaxed' - I'll file it away for the future. How much do you think insurance companies make from pension tax breaks?
AKH, 'intensely relaxed' is a Peter Mandelsonism.
Fact 1 - were it not for the tax breaks, nobody in his right mind would entrust his money to a pension fund (they'd pay off the mortgage, buy unit trusts, save up cash, take out life insurance etc).
Fact 2 - the total value of cash pension contributions; the total value of the tax breaks; the total value of private pensions paid out are all in the region of £50 billion a year.
So that's £100 billion going into the system and £50 billion coming out. Who do you think gets his hands on the missing £50 billion?
The whole pensions 'industry' is a massive government-sponsored rent-seeking scam.
Spot on with your figures regarding the "usual" public and private pensions.
Ex RN (27 years) pension £7,600 per year.
Private pension (25 years self employed) £1,800 per year.
Fucking' rollin' in the stuff, I wonder how the Kinnocks make ends meet.
"The whole pensions 'industry' is a massive government-sponsored rent-seeking scam" See 'NEST' for the next one.
If we had proper 'capitalism' we would not need 'pensions' as stuff would get cheaper every day. And therefore normal 'savings' would work to fund the time when we could no longer compete.
So it's worse than a pensions scam. It's part of the cod-keynesianistic, crony capitalist, central bank/commercial bank, political class nexus.
Right, which way to the barricades?
Oi, Wadders, visit this chap and scroll a little. Just up your street.
http://www.futilitycloset.com/
First, quoting "average" figures for public and private pension schemes is nonsensical unless salaries and number of years of payments is taken into account.
My university pension is derived from investing about 21% of my salary - about 15% from the employer and 6% (soon to rise) from me. It's not bad and is available to anyone prepared to invest 20% of his salary each month. Most people won't. I suggest that job contracts should have to include, in addition to the actual salary, the salary required to ensure a decent pension such as mine. This might stop private sector workers under 40 gloating about their salaries, and those over 40 bitching about my pension.
L, the pensions scam is far from the worst excess, it's still only a fifth as much as other corporatist subsidies (which amount to a staggering one-fifth of GDP).
D, that's a bit left field.
Anon, average figures are misleading in absolute terms but very relevant in relative terms. Is your pension a funded scheme, and if so, what's the deficit or surplus in the scheme?
Mark, link to our pension scheme. On the front page there is an explanation of various changes about to be made. It is funded, and the recent changes are supposed to guarantee its long-term survival. I'm afraid I don't the definition of "surplus" in this context. The UCC (Union) contend that the changes are unnecessary and are a step on the way to decreasing the employers contribution to 10%, which its says is the Government's aim.
http://www.uss.co.uk/Pages/default.aspx
Anon/MW - Some yeras ago I investigated the USS on behalf of a client - I think I've archived my papers, but I'll have a look....
No, sorry. Can't find anything. But from memory it is funded, but not completely.
The university scheme may be changing but they have had a final salary scheme in place. My father who used to work for a Uni was told on a number of occasions that he should not bother applying for particular positions that had become available because they had been earmarked for members of staff who were approaching retirement to ensure that they got the maximum possible final salary!!!
The bbc did quite a neat summary of public sector pensions here:
Public Sector Pensions
In the next five years just watch/cry while inflation makes every word ever written on pensions from the pension receiver's point of view completely irrelevant.
The USS website points out that USS is a private sector scheme - as it would be, since the govt doesn't own the Universities. (There are some TPS members in the Universities that were formerly govt-owned - former polys and such.)
Recently USS was funded by 6.35% from employees and 18% from employers.
Anon, L, D, the USS is the least of our worries, we know that lecturers are a bunch of self-important back stabbing shits etc, things may be different now they actually have to offer value for money.
DNA, good anecdotal, good link, ta.
CB, have you never heard of 'index linking'?
D, universities are 'para statals', they are or were almost entirely taxpayer funded but there was a mutually convenient arrangement whereby they didn't count as public sector employees.
"..they didn't count as public sector employees..": well, no, because they're not.
D, sure, apart from the fact that nearly all of their income came from the taxpayer, they aren't public sector employees. See also GPs, who are technically self-employed.
"... were it not for the tax breaks, nobody in his right mind would entrust his money to a pension fund (they'd pay off the mortgage, buy unit trusts, save up cash, take out life insurance etc)"
You missed the other possibility which is that they would not have saved as much as they have saved by being induced/fooled into taking out a pension plan.
I wouldn't mind betting there have been millions in their 20s and 30s who would not have considered setting aside money for their 60s and 70s had they not been, ahem, "nudged" into doing so by the superficial attraction of tax breaks.
That the admin costs can outweigh the tax saving does not negate the benefit of them putting something aside for ten or twenty years when otherwise they would probably not have even thought about it until their 40s.
TFB, your point is?
People in their 20s and 30s should be paying off their mortgages as quickly as possible, not speculating in shares on the side. You can do that once the mortgage is paid off, i.e. in your 40s.
Over the past ten years, it has become the fashion to take out the biggest mortgage you can and pay it off as slowly as possible (a third of people are on interest-only mortgages), so let's sort out this problem before we pretend that this government actually cares about a culture of thrift or savings or financial competence.
"Please note: unfunded civil services schemes are a completely different topic, these are pure and utter complete fraud and extortion."
I can't see how this is the case: surely it makes no difference whether the government 1) pays civil servants a salary, takes some of that same money back as tax, takes more of that same money as pension contributions and puts it in a large pot, waiting for those civil servants to retire, when it then pays it out as pensions or 2) saves time and effort by not giving the civil servants the money it was going to take back as pension contributions in the first place. It's all taxpayer's money, after all. It's pointless enough for civil servants to pay income tax and NI, after all.
Surely you are not suggesting that the government become the "pensions industry"'s largest customer?
You're out of date on "nearly all"; but even if you weren't, do you extend the logic to every firm that gets most of its income from government - some law firms or partnerships, I dare say, consultants, advertisers, perhaps even accountants, arms manufacturers .......
Come to think of it, how much of the grauniad's income comes from govt job ads?
Anyway, your logic is wrong since it doesn't attend to how the pension scheme is organised.
B, I'm not so fussed about how the cash flow is organised - as you say, a pay as you go scheme is usually the cheapest to run and least risky from point of view of payer or recipient, I'm talking about the amounts involved and the fact that the government doesn't account for the liablities/cost properly.
D, "do you extend the logic to every firm that gets most of its income from government - some law firms or partnerships, I dare say, consultants, advertisers, perhaps even accountants, arms manufacturers..?"
Yes of course - these people are rent seekers or privatised tax collectors, I covered that a fortnight ago.
As it happens, corporatist sector's income is about one-fifth of GDP, the corporatist sector is far bigger/more expensive than actual public sector employees and more expensive than welfare and pensions.
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