Pensions myths and other assorted stupidity

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.

It's good to see that they read each other's press releases

There's an article in the FT explaining that Lord Hutton is going to lift more ideas from UKIP's pensions manifesto and curtail the generosity of public sector pension schemes a bit (lower salary increases, higher contributions and career-average rather than final-salary etc) all good stuff, but what troubles me is Hutton recycling the old canard:

... it is in no one’s interest for large numbers of staff to opt out and end up on means-tested benefits.

1) So what? If means-tested old age benefits cost the taxpayer less than final salary pension schemes, that's not an issue.

2) As it happens, IDS took another leaf from UKIP's book and proposed merging the State Pension and the Pensions Credit into a flat-rate Citizen's Pension of £140 a week anyway, so in theory there won't be any means-tested benefits*.

Whether public sector employees should get their public sector pension in addition to the £140 is a separate debate (I would argue not, of course).

* Means-testing (being a brutal form of taxation) is as much anathema to me as 'contributory benefits' (which is an excuse for higher taxes while you're working), and in any event the two are more-or-less opposites so we can rule them out. This leaves us with the sensible middle-ground of universal flat-rate benefits (we can argue about the rate in £ per week, whereby £nil is an option worth considering, if only for the fun of ruling it out again).

Ah well, at least he'll have a job after next May

From the BBC:

Ed Miliband has said the UK cannot afford to "say no" to nuclear power as he prepares to announce plans to fast-track a new generation of reactors...

I've lost count of the number of times they've flip-flopped between being pro- and anti-nuclear energy, but at least Ed will have a nice cushy job lined up if he loses his seat at the next General Election, a bit like his former Cabinet colleague John Hutton.

Aha, so that's why John Hutton resigned ...

From The Times:

John Hutton, the former Business Secretary who was the architect of Britain’s plans to build a series of nuclear power stations, is in talks with EDF about joining the group as a senior adviser, The Times has learnt.

I had developed a sort of residual respect for John Hutton as the least-bad of a terrible bunch, but it now turns out he's a trougher like the rest of them. Reading on ...

EDF Energy set up a Stakeholder Advisory Panel in 2006. A spokesman said that its role was to allow the company’s senior management “to draw on the experience of eminent and diverse senior advisers outside of EDF Energy to discuss key strategic issues and their impact on our business”. Other members of the panel are Will Hutton, Diane Coyle, John Roberts and Simon Robertson.

So they're getting their propaganda team in place.

Will Hutton is currently 'Chief Executive of the Work Foundation', which is a Quango From Hell, see footnote here.

Diane Coyle's Wiki Page says she's "a freelance economist, and a former advisor to the UK Treasury. She is a member of the UK Competition Commission, and a member of the BBC Trust, the governing body of the British Broadcasting Corporation.

I can't track down anything on John Roberts, but Simon Robertson's background is even murkier:

THE Eden Project has been criticised by environmentalists over its links with French nuclear energy giant EDF and its UK subsidiary EDF Energy.

The Cornish environmental attraction supported EDF Energy's Green Britain Day, launched yesterday by athletes including Olympian Victoria Pendleton and Paralympian Eleanor Simmonds, which urges people to reduce their carbon footprint...

Two of Eden's trustees, Sir John Rose and Simon Robertson, are senior figures within Rolls-Royce, a firm known to be keen on nuclear development in the UK.

The cost of commonsense in a dying government

Of all the riff raff and dross in the Gummint, there are - bear with me here - a couple who occasionally think and speak clearly:

John Hutton, at the recent Labour Conference: "Tories say no to new coal and have sent mixed messages on nuclear. The Liberal Democrats say no to new coal and new nuclear. But no coal plus no nuclear equals no lights. No power. No future."

Phil Woolas, Environment Minister, explaining why imposing a windfall tax on energy companies was a bad idea: "[There is] no guarantee that a windfall tax would not be passed on to the customer. We can only regulate in the UK; we can’t regulate Saudi Arabia.”

Guess what. Hutton and Woolas have been reshuffled out of their posts.

Hutton has ended up as Secretary of State for Defence. Possibly a huge mistake, as there is more than a slim chance he actually knows what he is talking about: His hobbies include military history and he recently published a book on the experiences of King's Own Royal Lancasters during the First World War.

Woolas is now Immigration Minister. Oops! He actually knows a thing or two about this and is one of the few MPs* who have had the nerve, gall and temerity to point out:

... that marriages between first cousins are a factor in birth defects and inherited conditions. "Part of the risk, I am told by the health service, is first-cousin marriages. If you are supportive of the Asian community then you have a duty to raise this issue." It is estimated that 55 per cent of British Pakistanis are married to first cousins. The likelihood of unrelated couples having children with genetic disorders is about 100-1, but it rises to one in eight for first cousins. British Pakistani children account for as many as one-third of birth defects, despite making up only three per cent of all UK births.

... so I doubt whether either of them will last very long in their new posts.

* It's just him and Ann Cryer (Lab, Keighley), actually, AFAIAA.

New Labour Minister* talks sense - shock!

John Hutton at the Nulab Conference, in among the inevitable dross is this: "No coal and no nuclear equals no lights, no power, no future."

Guess what The World Development Movement, who received a modest £129,710 from the EU back in 2005 (page 9 of this), the last year for which they could be arsed to prepare accounts, have to say...

"John Hutton’s pro-coal stance ... is not founded on science, economics or reason."

Erm, coal burns to boil water to drive turbines to produce electricity, that's the science covered; extracting coal and burning it in power stations is a profitable activity that doesn't need subsidies - in fact, it creates tax revenues and employment, so that's the economics covered; and people like having electricity, that's the reason. Have I missed anything?

The World Development Movement has a parent charity, which spent a cool £1 million on a new office building in Ruffley Road, London SW9 0LS in 2006 (page 8 of this). The accounts bemoan "the widespread persistence of poverty after half a century of international effort to eradicate, or at least appreciably diminish it" without any apparent trace of irony. The possibility that aid payments cannot, and will not ever 'eradicate poverty' is of course off the radar - if they ever admitted it, they'd lose their raison d'être.

* Yes I know that he is a Secretary rather than a Minister, the difference appears to be that a Secretary is more senior and is in the Cabinet. So why is the Prime Minister not called Prime Secretary?

John Hutton

"Ministers consider windfall tax"

Oh God ... at least John Hutton shows a glimmer of commonsense.

The point is, the gummint has already had plenty of windfall taxes on the back of rising oil and gas prices:

The British Chambers of Commerce reckoned the annualised extra revenues would be over £4 bn on petrol alone, let's add on 50% for domestic fuel (only 5% VAT) and double it for additional corporation tax, which is 48% on North Sea oil and gas production = £12 bn.

That's £500 per household, for f***'s sake!

We could scrap the extra £70 per household for 'green' subsidies while we're at it.

Outbreak of commonsense!

Against a long backdrop of the LibLabConsensus trying to out-do each other in the MMGW-f***wittery stakes, comes this in today's FT:

Hutton eyes coal to replace imports of gas

John Hutton, business secretary, yesterday paved the way for a new generation of coal-fired power stations, claiming Britain could not wait for new clean-coal technology to come on stream... He said the Conservative policy on these plants - which would place a limit on carbon emissions - was "a potential threat to our energy security"... But Alan Duncan, shadow business secretary, said the intent of the government to develop coal "at any cost", was a decision that would leave future generations with a "massive carbon headache". He added: "That means they can only keep the lights on by being dirty."

What a turnaround! It only seems like a few days ago that The Goblin King heralded windpower as The Next Big Thing ... oh, it was.

Of course, John Hutton seems to have overlooked the EU's Large Combustion Plants Directive, which means we can't build them anyway, but hey.

"Minimum wage will rise to £5.73"

They are not just stupid enough to do this, but pathological liars who don't understand their own rules:

Business Secretary John Hutton said ... "Before it was introduced, some workers could expect to be paid as little as 35 pence an hour...".

I have no idea how many people worked for 35 pence an hour*, but glossing over that, somebody on the NMW and Tax Credits has a marginal tax/withdrawal rate of 70%, so in October 2008, their net hourly salary will rocket from £1.66 to £1.72. If they're claiming Housing/Council Tax Benefit as well, their marginal rate is 95.5%, so their net hourly pay will whizz up from 25 pence to a 26 pence an hour!

Dave Prentis, Unison general secretary [said] "A much more realistic figure would be a minimum wage of £6.75 an hour, which would lift many more families out of poverty and off means-tested benefits."

OK, let's assume Mum's at home with two kids and Dad is slaving away 48 hours a week on the NMW of currently £5.52 = £265 gross, per Table 1.6b the family's net income after housing costs is £259. Increase the NMW to £6.75, and assuming he doesn't lose his job anyway**, their net household income increases by a modest £18 to £275, so the family is hardly lifted out of poverty. At this stage he's paying £71 tax/NI a week but the family is still entitled to Child Tax Credits worth £76 a week, so they are very much still on means-tested benefits.

* But our hard working Dad in the above example is actually working for £1 an hour net; if he were to pack in working, the family's net income after housing costs would only fall to £209 (Table 2.1a). For comparison, in the early 1980s, up in Leeds, I earned £1 an hour working at a printer's and in a café near the market, so 35p must be decades ago.

** Because of course, a £1.23 rise in NMW would cost the employer £1.39 once you include Employer's NI; as against the extra 38 pence an hour our 'hard working Dad' would be getting. So the odds are 4-to-1 that the total net incomes of those people currently on the NMW would fall overall, once you net off the modest wins and those who become unemployed.