UK pensions

[billzant]

31 minutes ago, sandyf said:

Yes but how much is left. In 2009 we know there was a surplus of around £59 billion but 12.8% of income tax was used in the 2014/15 tax year to make up the shortfall between available NI and the state pension liability.

As described in Rajab's dreary detail the fund was setup in part to enable to payment of "benefits" . That does not mean allowing the fund to run down, and then blaming other factors such as life expectancy for not paying. Again according to the dreary detail it made provision to bring money from taxes. It is as if there is a strategy of playing off pension liability against other needs - eg let's blame the pension liability for reducing the NHS.

 

The fund has been around since 1975. There has been plenty of time for the fund managers to adjust investment strategies to ensure that there is the required amount to enable payment of pension liability ie what we are entitled to because of our payments. Is it only this year that people are living longer??

[sandyf]

Never noticed October meant in 2016, report already published.

 

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/611460/independent-review-of-the-state-pension-age-smoothing-the-transition.pdf

[mommysboy]

12 minutes ago, sandyf said:

In the tax year 2014/15, income tax revenue was about 163 billion so about 20 billion was used to prop up the state pension. Again in 2015/16, 12.8% of income tax was taken from the 168 billion of income tax revenue, another 20 or so billion.

Strikes me that whatever is showing in this so called fund is insignificant compared to the annual shortfall in NI.

Yes, this is very confusing. Treasury grants were made. You would have thought some investments would have been offloaded.  Maybe the fund account is more notional or actual funds not easily liquidated due to obligations.

 

There was definitely a shortfall though.  Part of this is the economic malaise of the country, but it is also the demographic issue beginning to show. 

 

It just seems obvious to me that the current pension needs to be cut, contributions raised, and the pension age upped.  But these things are usually phased in over years and even decades. 

[billzant]

I have just read this article:-

 

http://www.thisismoney.co.uk/money/pensions/article-2787888/how-state-pension-funded-cash-runs.html

 

I note "How is the state pension funded?

The state pension is paid for by national insurance contributions, which come from the wages of people working today.

Effectively, each working generation pays for the older generation above them. However, NI is also used to pay other benefits, such as to the unemployed."

 

This is designed failure with an increasing pension population. Why aren't they changing the strategy rather than bleating and demanding lower pensions etc.? This decision is political and not financial.

I also note "

It says: 'The Government Actuary’s Department recently forecast that the National Insurance Fund will be exhausted by 2035-36.

'While fund exhaustion may be of little economic significance (it is an accounting curio rather than a real fund), it will be a symbolic event, indicating that the new state pension is unsustainable.'"

If actuarially they are predicting exhaustion, why aren't they actuarially looking for strategies that will meet their commitment to pension entitlement?

If the fund is an accounting curio, then that means the government can decide to pay pensions or not. In other words, again the decision to reduce the payment of pensions is political and not financial.

[billzant]

The overall strategy on pensions is very much like the inertia strategy on not paying frozen pensions, they just don't want to pay.

 

[Rajab Al Zarahni]

14 minutes ago, mommysboy said:

Yes, this is very confusing. Treasury grants were made. You would have thought some investments would have been offloaded.  Maybe the fund account is more notional or actual funds not easily liquidated due to obligations.

 

There was definitely a shortfall though.  Part of this is the economic malaise of the country, but it is also the demographic issue beginning to show. 

 

It just seems obvious to me that the current pension needs to be cut, contributions raised, and the pension age upped.  But these things are usually phased in over years and even decades. 

There are a number of other things that have been put forward including the disturbing suggestion of levying NI contributions on people over pension age.

II think it was David Cameron who promised us " a bonfire of the QUANGO'S" This in fact never happened  but it is clear that the economy of the country is sinking under the weight of its own administration.  This would be my starting point. Every year we have initiatives to streamline services or make them more efficient but rarely ,if ever, do we here of a service being abolished. Why for example do we meed ACAS when we have had no significant industrial disputes warranting its intervention for at least 20 years ?

If people are living longer and we need to spend more money on pensions, that we don't have, then stop spending the money  on promoting ballet dancing initiatives in Ethiopia ! 

[Oxx]

3 hours ago, Rajab Al Zarahni said:

3 hours ago, Oxx said:

 

Do you have a single shred of evidence to confirm what you assert? I'm guessing "no".  There is no "investment" in gilts.  Zip, nada, zilch.

Here is the answer for those who are interested in the dreary detail:

 

The NIF is intended to be the 'current account' of the National Insurance Scheme

 

So, I was right.  There is no investment whatsoever in gilts.

 

Gilts are simply held short term as an alternative to holding cash, which makes sense since the returns are fractionally better.

[Rajab Al Zarahni]

5 minutes ago, Oxx said:

 

So, I was right.  There is no investment whatsoever in gilts.

 

Gilts are simply held short term as an alternative to holding cash, which makes sense since the returns are fractionally better.

Technically, I believe you are right as at today . From my understanding the NIF did originally have gilt holdings then in 1981, HM Treasury arranged to create "NILO" stocks specifically to meet CRND's investment needs when there was no other way to do so. HM Treasury issues non-marketable NILO (named after the former National Investment and Loans Office) stocks on the same terms and conditions as the marketable parent gilt issue(s) to which they relate. All transactions in NILO stocks were dealt with on the basis of the current market price of the parent gilts. NILO stock that were no longer required by CRND were purchased and cancelled by the Treasury.

In January 2007 the NIF  sold off all its gilt holdings, presumably as NILO stocks and created the debt Management Account Deposit Facility.

It still has an investment account facility and still receives modest increases but I can find no information on investments. I think the probability is that the government top it up at the level of bank base rate. 

 

 

 

[mbamber]

Invested in the Merchant Navy Pension Fund and thought if I retired early I would have a reasonable pension but low & behold it was about 1/3 MORE than I expected.

According to new data I will get the state pension at 66 I doubt I will get anything the only pension right I have at present is to pay Tax on it.

[Rajab Al Zarahni]

4 minutes ago, mbamber said:

Invested in the Merchant Navy Pension Fund and thought if I retired early I would have a reasonable pension but low & behold it was about 1/3 MORE than I expected.

According to new data I will get the state pension at 66 I doubt I will get anything the only pension right I have at present is to pay Tax on it.

The great thing about being a pessimist is that you will never be disappointed. 

[denby45]

6 hours ago, mommysboy said:

It's also a myth to suggest it is not a fund as some do, but purely 'pay as you go'.  In fact the fund invests in gilts.

 

Yes I believe the gov has dipped in to this pool from time to time but can't find any examples.

Whichever way you cut it's a glorified Ponzi scheme. Yes there is a fund which handles surplus. So what. A real fund would have taken your contributions and deposited them on your behalf and invested those same funds in order to grow your cash pot to supply you with a pension on retirement. Much like a personal pension. That is not what has happened. Every year they collect and use your cash to pay the pensions of others.

 

Den

[mommysboy]

3 hours ago, mbamber said:

Invested in the Merchant Navy Pension Fund and thought if I retired early I would have a reasonable pension but low & behold it was about 1/3 MORE than I expected.

According to new data I will get the state pension at 66 I doubt I will get anything the only pension right I have at present is to pay Tax on it.

You would only not get the State Pension it if you didn't make enough contributions.  You only pay tax when you exceed your personal tax threshold.

[mommysboy]

1 hour ago, denby45 said:

Whichever way you cut it's a glorified Ponzi scheme. Yes there is a fund which handles surplus. So what. A real fund would have taken your contributions and deposited them on your behalf and invested those same funds in order to grow your cash pot to supply you with a pension on retirement. Much like a personal pension. That is not what has happened. Every year they collect and use your cash to pay the pensions of others.

 

Den

It is not a Ponzi scheme.  It has functioned quite well for donkey's years and the payout is guaranteed by the government.  People may want to cast aspersions presumably as a prelude to scrapping it.

[mommysboy]

3 hours ago, Oxx said:

 

So, I was right.  There is no investment whatsoever in gilts.

 

Gilts are simply held short term as an alternative to holding cash, which makes sense since the returns are fractionally better.

Not in the sense you mean: as in 'it's a myth'.  As we've seen it is a definite fund and it now invests in something similar.

[mbamber]

1 hour ago, mommysboy said:

You would only not get the State Pension it if you didn't make enough contributions.  You only pay tax when you exceed your personal tax threshold.

Got over 35 years contributions, I don't think the State Pension will be 66 in 6 years or exist, it will be classed as a benefit & means tested more you put in the less you get out.

[mommysboy]

14 hours ago, mbamber said:

Got over 35 years contributions, I don't think the State Pension will be 66 in 6 years or exist, it will be classed as a benefit & means tested more you put in the less you get out.

It is a pension scheme, and it could not be changed to means tested at the drop of a hat.  Actually, I don't think it could be converted to means tested at all.

[denby45]

17 hours ago, mommysboy said:

It is not a Ponzi scheme.  It has functioned quite well for donkey's years and the payout is guaranteed by the government.  People may want to cast aspersions presumably as a prelude to scrapping it.

Granted the scheme has to all intents and purposes faired quite well. However as all Ponzi schemes do, it will fail in the end. It is a scheme that is unsustainable. As the ratio of workers to retirees trends from 3:1 today to 1:1 by 2050 their ponzi scheme will fail at some point. The government of today are largely ignoring what is staring them in the face and doing very little other than tinkering. Just like the massive debt they have run up. Sweep it under the carpet because addressing the problems head on as they should will  not be very popular with the voting public. 

In contrast, just look at Norway, which has invested all its gas and oil profits for decades. As a result, a tiny country like Norway – a country with just five million inhabitants – now has a Sovereign Wealth Fund worth US$900bn. It puts the UK to shame.

 

Den

[mommysboy]

18 minutes ago, denby45 said:

Granted the scheme has to all intents and purposes faired quite well. However as all Ponzi schemes do, it will fail in the end. It is a scheme that is unsustainable. As the ratio of workers to retirees trends from 3:1 today to 1:1 by 2050 their ponzi scheme will fail at some point. The government of today are largely ignoring what is staring them in the face and doing very little other than tinkering. Just like the massive debt they have run up. Sweep it under the carpet because addressing the problems head on as they should will  not be very popular with the voting public. 

 

Den

Yes, I agree with all of that, but saying Ponzi scheme could make people believe that it is not a proper pension scheme, is not lawful, or that anyone can do whatever they like.  The contributors have rights under the Pensions Act, and indeed Common Law.

 

For instance, it could not be means tested- anymore than someone's private pension could be- you can't just say 'you are wealthy so I am not going to pay you'. 

 

The Oz pension, I think, has always been a means tested benefit.  The UK Pension is a bona fide Pension Scheme.

 

Obviously, logically, this problem can be solved, by adjusting payments, contributions, and age barriers.  However unpalatable for the gov, screwing hard working people out of their pensions won't be a vote winner either.

 

 

[DILLIGAD]

Yes, I agree with all of that, but saying Ponzi scheme could make people believe that it is not a proper pension scheme, is not lawful, or that anyone can do whatever they like.  The contributors have rights under the Pensions Act, and indeed Common Law.
 
For instance, it could not be means tested- anymore than someone's private pension could be- you can't just say 'you are wealthy so I am not going to pay you'. 
 
The Oz pension, I think, has always been a means tested benefit.  The UK Pension is a bona fide Pension Scheme.
 
Obviously, logically, this problem can be solved, by adjusting payments, contributions, and age barriers.  However unpalatable for the gov, screwing hard working people out of their pensions won't be a vote winner either.
 
 

Wish I felt so confident as you that some cunning changes couldn’t be made despite the ‘current’ rules & regs.


Sent from my iPhone using Tapatalk

[mommysboy]

20 minutes ago, DILLIGAD said:

Wish I felt so confident as you that some cunning changes couldn’t be made despite the ‘current’ rules & regs.


Sent from my iPhone using Tapatalk

Well the gov effectively shoved sick people off NHS care and on to social care, making homeowners effectively  shoulder the cost of nursing homes.So, I know what you mean.

 

But the point to be borne in mind is that unlike benefit payments, the government can't substantially change terms and conditions any more than a private pension scheme.  Even the recent overhaul required a new Act of Parliament.

 

A cunning change would be to simply not uprate the pension, but give the poor means tested pension credit.  And then tinker about with ages and contributions, as it is doing now.

[nong38]

1 hour ago, mommysboy said:

Well the gov effectively shoved sick people off NHS care and on to social care, making homeowners effectively  shoulder the cost of nursing homes.So, I know what you mean.

 

But the point to be borne in mind is that unlike benefit payments, the government can't substantially change terms and conditions any more than a private pension scheme.  Even the recent overhaul required a new Act of Parliament.

 

A cunning change would be to simply not uprate the pension, but give the poor means tested pension credit.  And then tinker about with ages and contributions, as it is doing now.

The Government will just keep kicking the problem down the road for others to deal with, the solution is not a vote winner but sometime someone will have to deal with it.

I wonder what ever happened to our profits from oil and gas, where is our UK Wealth Fund? Answers on a wheelie bin and send to your nearest Prime Minister.

[Golden Triangle]

Just trying to put this whole topic into perspective I may have got some things wrong as I have been here for nearly 7 years now but I'm sure you will catch mu drift.

 

Since I have been in Thailand I have had fairly major surgery in Bangkok Hospital Pattaya, I have had new prescription glasses made, been to a few dentists for fillings etc, all this has obviously come out of my pocket, so as I am only a few months away from claiming my pension and I do believe that age 60 I am entitled to a few government funded benefits such as free dental care, opticians, NHS (obviously), free bus pass & perhaps loads that I have omitted, I could really do with another new knee but I'm not thinking of heading back to join that merry go round. And of course any future health concerns will be funded by me, no insurance.

 

So, in a trade off how much have I saved the tax payer / government in unused benefits as opposed to uplifting our pensions over the years ?

 

I really think that the government should be grateful that we move to places like this and ease the burden on overworked understaffed public services.

 

[nong38]

12 minutes ago, Golden Triangle said:

Just trying to put this whole topic into perspective I may have got some things wrong as I have been here for nearly 7 years now but I'm sure you will catch mu drift.

 

Since I have been in Thailand I have had fairly major surgery in Bangkok Hospital Pattaya, I have had new prescription glasses made, been to a few dentists for fillings etc, all this has obviously come out of my pocket, so as I am only a few months away from claiming my pension and I do believe that age 60 I am entitled to a few government funded benefits such as free dental care, opticians, NHS (obviously), free bus pass & perhaps loads that I have omitted, I could really do with another new knee but I'm not thinking of heading back to join that merry go round. And of course any future health concerns will be funded by me, no insurance.

 

So, in a trade off how much have I saved the tax payer / government in unused benefits as opposed to uplifting our pensions over the years ?

 

I really think that the government should be grateful that we move to places like this and ease the burden on overworked understaffed public services.

 

The figure I have seen quoted in the past has been in the order of +8400 GBP so its probably over 9k now, no one thanks you for the savings, its all give, give, give. Give up your frozen pension, give more taxes etc etc. The Govt choose ignore these figures and focus on things that really matter like making life more difficult for you enjoy.

Personally I take heart everytime I read about refugees and asylum seekers being welcomed with a house whilst the indigenous population cant afford one and they just are not building enough, I am overjoyed that they can claim benefits that I cannot, I feel sorry for them that they cannot speak English yet amazingly can bag all these goodies. 

The thing is there is nothing I can do about it and its difficult to take it away from them now as it will be seen as discrimination and we cannot have that can we, well if you are an expat pensioner you can have the discrimination. I am off to a nice beach, warm sea and beer tonight, DWP free.

 

GT if you want to get back at them and you can afford to don't claim your pension straight away, defer if for a few years and make them pay you more every month

[mommysboy]

Having looked at the present system, there doesn't appear to be much wrong.  It is aleady one of the least expensive in the world consuming just 5% of GDP, and nearly all of that has been covered by NI contributions. Other peer countries, and numerous developing countries, spend 9, 11, and even 13%.  It pays out 22% of the average wage!  The fund is actually in a better state than some private schemes.  Collectively they have massive deficits whereas the state fund is in surplus for the time being anyway.

 

Furthermore, under the Pensions Act 2014, there are provisions to substantially alter payouts and contributions over a given period of time.

 

It can't be replaced easily.  And what with anyway?  One way or another the government will have to shell out to existing members. And you'd probably end up with something much the same as you have now.

 

 

 

 

[sandyf]

19 hours ago, denby45 said:

Granted the scheme has to all intents and purposes faired quite well. However as all Ponzi schemes do, it will fail in the end. It is a scheme that is unsustainable. As the ratio of workers to retirees trends from 3:1 today to 1:1 by 2050 their ponzi scheme will fail at some point. The government of today are largely ignoring what is staring them in the face and doing very little other than tinkering. Just like the massive debt they have run up. Sweep it under the carpet because addressing the problems head on as they should will  not be very popular with the voting public. 

In contrast, just look at Norway, which has invested all its gas and oil profits for decades. As a result, a tiny country like Norway – a country with just five million inhabitants – now has a Sovereign Wealth Fund worth US$900bn. It puts the UK to shame.

 

Den

Spot on, the UK certainly screwed up with the oil revenues. It is already recognised as unsustainable and why proposals covering the next 50 years are already on the table.

 

If further savings are needed to ensure fiscal sustainability, they are more appropriately delivered by moving in the future to uprating the pension by earnings. We recommend that the triple lock is withdrawn in the next Parliament. Under our recommended timetable, State Pension spending would be 6.7% of GDP in 2066/67, which is a reduction of 0.3% compared to the principal OBR projection. If the triple lock is withdrawn, spending will be further reduced to 5.9% of GDP by 2066/67 

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/611460/independent-review-of-the-state-pension-age-smoothing-the-transition.pdf

[denby45]

56 minutes ago, sandyf said:

Spot on, the UK certainly screwed up with the oil revenues. It is already recognised as unsustainable and why proposals covering the next 50 years are already on the table.

 

If further savings are needed to ensure fiscal sustainability, they are more appropriately delivered by moving in the future to uprating the pension by earnings. We recommend that the triple lock is withdrawn in the next Parliament. Under our recommended timetable, State Pension spending would be 6.7% of GDP in 2066/67, which is a reduction of 0.3% compared to the principal OBR projection. If the triple lock is withdrawn, spending will be further reduced to 5.9% of GDP by 2066/67 

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/611460/independent-review-of-the-state-pension-age-smoothing-the-transition.pdf

Thanks for that report Sandy. It is commendable that we are trying to do something and I do hope that some of the recommendations will help. However I really got discouraged about the report, which by the way is based solely on assumptions, when I read the statement  “The Office for National Statistics (ONS) currently predicts that life expectancy will continue to increase, although improvements will slow down over the next few decades.”

 

This statement on it’s own skews all of his calculations and following arguments. It could not be more wrong. There is a pipeline of age related cures in the testing system today which will get approval in the near future. People will be astounded by the improvements in both health and longevity. 

I also feel that some of his figures are undercooked, however he is of course more well informed than I so I hope I am wrong on that. 

Overall a good effort at identifying the problems and putting forward a workable solution going forward.

 

Den

[denby45]

17 hours ago, nong38 said:

The figure I have seen quoted in the past has been in the order of +8400 GBP so its probably over 9k now, no one thanks you for the savings, its all give, give, give. Give up your frozen pension, give more taxes etc etc. The Govt choose ignore these figures and focus on things that really matter like making life more difficult for you enjoy.

Personally I take heart everytime I read about refugees and asylum seekers being welcomed with a house whilst the indigenous population cant afford one and they just are not building enough, I am overjoyed that they can claim benefits that I cannot, I feel sorry for them that they cannot speak English yet amazingly can bag all these goodies. 

The thing is there is nothing I can do about it and its difficult to take it away from them now as it will be seen as discrimination and we cannot have that can we, well if you are an expat pensioner you can have the discrimination. I am off to a nice beach, warm sea and beer tonight, DWP free.

 

GT if you want to get back at them and you can afford to don't claim your pension straight away, defer if for a few years and make them pay you more every month

I think everyone who is considering deferring needs to sit down and do the calculation. Prior to them halving the percentage I was also considering this option. However based on my own life expectancy (assumption of course) I decided it was not going to be worth it now.

 

Den 

[denby45]

19 hours ago, mommysboy said:

Well the gov effectively shoved sick people off NHS care and on to social care, making homeowners effectively  shoulder the cost of nursing homes.So, I know what you mean.

 

But the point to be borne in mind is that unlike benefit payments, the government can't substantially change terms and conditions any more than a private pension scheme.  Even the recent overhaul required a new Act of Parliament.

 

A cunning change would be to simply not uprate the pension, but give the poor means tested pension credit.  And then tinker about with ages and contributions, as it is doing now.

Hats off to you. Now you have finally realised that at some stage means testing will be employed for pensions in some form. It is inevitable unfortunately merely because it is one of only a few ways in which they can balance the books.

 

Den

[mommysboy]

3 hours ago, sandyf said:

Spot on, the UK certainly screwed up with the oil revenues. It is already recognised as unsustainable and why proposals covering the next 50 years are already on the table.

 

If further savings are needed to ensure fiscal sustainability, they are more appropriately delivered by moving in the future to uprating the pension by earnings. We recommend that the triple lock is withdrawn in the next Parliament. Under our recommended timetable, State Pension spending would be 6.7% of GDP in 2066/67, which is a reduction of 0.3% compared to the principal OBR projection. If the triple lock is withdrawn, spending will be further reduced to 5.9% of GDP by 2066/67 

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/611460/independent-review-of-the-state-pension-age-smoothing-the-transition.pdf

 

I can't see what needs to be done really, that isn't being done already.

 

I think there has also been a fair bit of optimism regarding life expectancy: you could just as well argue it will go down, and of course we are going through a unique time without wars and plagues.

 

Also, surely retirement age can just be adjusted according to longevity.  All of us, myself included have bought in to the notion of 20 or 30 years of retirement, because of course we want to believe we will live a long life.  The reality is that even now people are spending roughly 15 years receiving pension  (ave. life expectancy- retirement age).  I realise that is quite a simple calculation but if it is longer then we should also be minded that there is actually an uncomfortably high attrition rate aged 50 to 65  (gulp!!!).  So there is an unfortunate cohort that are fully paid but receive nothing because of demise.

 

My take is that by 2050 the retirement age will have to budget for around 10 years pay out on average, because there will be less payments coming in.  I imagine that will mean a retirement age of around 70 plus.

 

Why do people think that there is a problem that can not be resolved relatively easily within the current scheme?

 

 

I don't think means testing is either desirable or required, or even legal for that matter.  Besides there are other means.

 

 

[mommysboy]

2 hours ago, denby45 said:

Hats off to you. Now you have finally realised that at some stage means testing will be employed for pensions in some form. It is inevitable unfortunately merely because it is one of only a few ways in which they can balance the books.

 

Den

 

The books will need to be balanced, but the scheme can do that, and indeed that is being planned already with the forthcoming increments. For instance, my contribution years went up 5 and I won't receive it until I am 67.

 

It could be that in 40 years time people will have to wait until they are 75, and pay 45 years in to the system.

 

But as for means testing written in to the scheme: I just can't see how that is possible given that it is a pension scheme, and a legal contract.  You can't accept contributions, enter in to a legal agreement, and then choose not to pay because you think someone already has enough money.

 

Remember, Australia only means tested that part which could be means tested. It doesn't means test the basic universal allowance.  There is no part of the UK scheme that is subject to means testing.