Mark Wadsworth

This is a spare 'blog in case my main 'blog at isn't working

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.
Please note: unfunded civil services schemes are a completely different topic, these are pure and utter complete fraud and extortion.


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