The Welfare State We're In: Pensions Archives

January 23, 2007

Tuesday

How Gordon Brown has impoverished the retirements of those working today

Dr Ros Altman, who apparently spent six years advising the Treasury and Number 10, says that 80 per cent of workers face a retirement in poverty and that "if there is one person in Government who is responsible for this pensions scandal, it has to be the Chancellor".

She is critical particularly of Gordon Brown's decision to scrap tax relief on dividends received by pension funds which is generally (though now probably inaccurately) said to cost the funds £5 billion a year. But - just as important - this withdrawal of tax relief has deterred many companies from offering company pension schemes any more.

Here is the most remarkable figure from the Daily Mail article today on the subject: apparently only 39 per cent of the working age population now have a company or personal pension. When Labour came to power in 1997, the figure was close to 60 per cent.

Unless these figures are misleading in some way, this is dramatic evidence of the failure of Gordon Brown. He has impoverished the retirement years of millions of the people. He just did not grasp the unintended consequences of his actions. It would tempting to call him a blundering fool. But he is something stranger than that: a blundering clever-clever.

According to the Mail (sadly the story does not seem to be online) Dr Altmann's comments will be made in an ITV1 documentary "Where's my pension gone?" to be shown on Thursday at 9pm.

Posted by James Bartholomew • Indexed in Pensions

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May 09, 2006

Tuesday

Ruth Kelly's 'social justice' and taxing more pensioners

Ruth Kelly was on the Today programme this morning and asserted that, under Labour, social justice had advanced. How does Ruth Kelly define 'social justice'? How does she measure it? The concept seems extremely vague. Does it mean giving more to the poor and taking more from the rich? So is the ultimate social justice when everyone has the same wealth? And does that not go by another name: communism? Has the concept of communism not been totally discredited by the vast and disastrous experiments in it during the 20th century?

It leads one to suspect that the phrase 'social justice' is a eumphemism for socialism or communism. And if it is not that, what is it?

Is it 'social justice' that:

The number of pensioners paying income tax has risen by 1.2 million under Labour, official figures reveal.
When Tony Blair entered No 10 in 1997 3.9 million men over 65 and women over 60 were in the tax net.

That figure has risen by a third to a record 5.1 million - nearly half the 11.1 Britons over state pension age, according to Government figures for the current tax year.

And later,

The Treasury put the rise down to the ageing population last night.
But the number of old age pensioners has only gone by 400,000 since 1997.

The above is from the Daily Mail.

Is the taxation of more old age pensioners a reflection of the greater 'social justice' in modern Britain? It remains the case, as I described in The Welfare State We're In, that the government defines a considerable number of people in this country as being in 'poverty'. It then taxes them. Many of these are pensioners. Rather more of them are now pensioners after Labour's rule. (I was glad to see the Tory spokesman Philip Hammond also making the point yesterday that the government taxes pensioners it defines as being in poverty.)

Incidentally, the Daily Mail is probably the most despised newspaper among the urban elite. But it keeps on picking up stories like this which tell us a great deal. It would be good to see some part of the BBC take this story on. The Today programme, for example.

Posted by James Bartholomew • Indexed in Media, including BBC bias • Pensions • Tax and growth

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January 23, 2006

Monday

Somehow it is never pay or pensions that get cut for government employees

Not long ago, someone commented on this site that whenever all or part of the NHS runs out of money, wards are closed or operations are delayed or some other cost-saving measure is taken. But never are salaries cut back.

The fact illustrates the way in which government-provided services, as opposed to commercial or charitable ones, have a particularly strong tendency to look after their staff first, rather than the customers (or patients or students) who receive the service. Of course it does not feel like that to the doctors, nurses, administrators, teachers and so on. It feels to them like they are badly paid and enduring difficult and frustrating conditions. This is often true, too. But the fact remains that their pay and pensions are kept sacrosanct that would not apply if they were in the commercial or charitable world.

Further evidence of this came at the weekend in this story:

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Posted by James Bartholomew • Indexed in Education • NHS • Pensions • Waste in public services

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January 17, 2006

Tuesday

Reform of incapacity benefit - again

The government is going to reform incapacity benefit and demand that more of those people on it who are capable of work make real efforts to be get a job. That line could have been written almost any time since Labour has been in power. The fact that the government is announcing this intention yet again should not make us believe it is actually going to happen.

Here is the Guardian coverage of the speech on the subject by John Hutton yesterday. It is the usual thing and perfectly fine so far as it goes. But it does not go very far. And once Labour backbenchers have demanded that it be made less 'tough', it will travel an even shorter distance. The failure to reform incapacity benefit in Britain stands in marked contrast to the vigorous reforms in some states in the USA.

Update:

On dipping into the speech itself, I find a passage in which it almost seems that Mr Hutton might have read The Welfare State We're In:

Our predecessors – Hardie, Atlee, Wilson, Callaghan – would have been horrified to see how the notion of personal responsibility gradually became obscured over the decades as parts of our welfare system trapped people between the twin vices of benefit dependency and poverty. Once inside the benefits system, it was often difficult to get out. People were frequently better off on benefit than in work.

I am not sure he is right about Wilson and Callaghan, who bear much of the responsibility for the way it all went wrong. But he is surely correct about Hardie and Attlee. (He won't have got the mispelling 'Atlee' from my book.)

Mr Hutton can, up to a point, talk the talk. But I doubt he can walk the walk. The full speech is here.

Further update:

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One of the more interesting passages in his speech, arguing that there is a demographic need to get more people into work:

Maximising employment is equally essential for Britain to cope with the demographic challenge of a nation where people are living longer and healthier lives. By the late 2020s, nearly half of the adult population will be over 50. Over the next forty years or so, the numbers of pensioners will increase by 50%. Originally there were ten people of working age for every pensioner. Now there are four for every one pensioner; By 2050, two of working age for every one in retirement. Unemployment levels for people over 50 are relatively low, but economic inactivity rates are high and many people leave work early because of ill health. The economic consequences of these trends could be serious unless we take action now.
It is for those reasons that we have set ourselves the aspiration of working towards an 80% employment rate – reducing the numbers on sickness benefit by one million, and getting one million more older people and 300,000 extra lone parents into work.

To do that we must extend the principles of active, tailored welfare across the entire welfare state – providing help and support to the key groups that remain left behind.

Incapacity benefit remains one of the greatest barriers to social justice in Britain today. While 80-90 per cent of people coming onto the benefit expect to get back to work – many never do. After two years on the benefit, someone is more likely to die or retire than to find a new job. This is just not good enough.

Further update:

And here is a clear indictment of incapacity benefit as it has been:

For all claimants, it is the passive system itself that traps people in poverty.
- Nothing expected of claimants, and little support is offered.

- The gateway to the benefit poorly managed, with some claimants receiving IB before even passing the medical test;

- There are perverse incentives to stay on the benefit – you get paid more the longer you claim;

- And those who try to plan their return to work through volunteering and training run the risk of proving themselves capable of work and losing their entitlement;

Even the name of the benefit sends a signal that a person is incapable – that there is nothing that can be done

The following is also interesting, especially the reference to housing benefit, which probably is far more important in causing benefit dependency than is widely realised.

Radically changing incapacity benefit is critical to giving more opportunity to those trapped by the current system, but the green paper will also seek to do more for other key groups who still face barriers to accessing the benefits that work can bring.

- We will set out proposals to do more to help lone parents balance their need to care for their children with the huge benefit to their family that a job can bring.

- We will bring forward measures to do more to help older people overcome the barriers to work which make their employment rates significantly lower than the population as a whole.

- And we will reform housing benefit so it better promotes personal responsibility and does not hold people back from working.

Wrap up extended reading.

Posted by James Bartholomew • Indexed in Pensions • Welfare benefits

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December 07, 2005

Wednesday

You wouldn't be a hypocrite would you, Mr Brown?

Gordon Brown has gave the thumbs down to the Turner Commission report on pensions on the basis that they were 'unaffordable'. But if Mr Brown become prime minister for just one day, his pension pot will double in size.

Below is a delicious letter by Lord Oakeshott, the Liberal Democrat peer, on this subject. One extra thing to bear in mind as you read it: Gordon Brown as Chancellor of the Exchequer has instituted a new system for other people's pensions whereby they get taxed heavily if their pension pot rises above £1.5 million or so. His own pension pot equivalent - as prime minister - would be over £2 million. The hypocrisy - if he takes it - would be awesome.

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Posted by James Bartholomew • Indexed in Pensions • Politics

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December 06, 2005

Tuesday

Is criticism of the government silenced by fear of victimisation?

Gordon Brown's pension bungle (see below) was the lead item on the BBC's World at One on Radio 4 today. Notice one thing that is even worse than Mr Brown's wasting of other people's time and money. The objections to it are being made by the industry body, not by individual pension providers. Why? I am told by the personal finance editor of a national newspaper that it is because they are scared of reprisals. Apparently Legal and General once put its head above the parapet and criticised the government. It was victimised as a result.

If this is right, it is a terrible state we have reached. It is dreadful if companies dare not criticise the government in case they get singled out for rough treatment. It is the sort of thing we have, until recently, associated with uncivilised countries that do not have the proper rule of law.

Posted by James Bartholomew • Indexed in Pensions • Politics

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Gordon Brown has been criticised - but not enough

The press and the BBC have, for once, been fairly critical of Gordon Brown and his pre-budget report. But not critical enough.

For the past year or more, the financial pages of all newspapers have been looking forward to the new pensions regime previously announced by Mr Brown. Standard Life said this morning that it, alone, had spent hundreds of thousands of pounds preparing for what Mr Brown had announced he would introduce - namely allowing pension funds to buy residential homes and other things such as fine wines. What Standard Life did, many other pension providers will also have done. So they have spent millions of pounds belonging to their shareholders - largely pension funds investing money for the retirements of many of us. Now Mr Brown gets up and says, "Ooops, sorry! I made a mistake. What I announced before is too open to abuse. I am now de-announcing it."

Except of course, he did not apologise. He has wasted money that was going to pay the pensions of millions of people. Pensions will, albeit fractionally, be lower as a result. But he did not apologise. The man has bungled. He has been incompetent. It has cost other people money. The press should have said all this bluntly.

Posted by James Bartholomew • Indexed in Pensions

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The Turner Commission report

For reference, here is a link the the Turner Commission final report on pensions. Here is its full web address: http://www.pensionscommission.org.uk/publications/2005/annrep/annrep-index.asp

As has been widely reported, it was killed before birth by Gordon Brown. Gordon Brown, the great means-tester, has been influenced, I would guess, by Treasury officials. They, like generations of their forebears since 1945, have understood very well what things will cost this year and next year. They have thought they understood long term costs, too. But they haven't.

What they have consistently failed to recognise is that if you means-test people they will, over time, adjust their behaviour so as not to waste their own efforts and their own money. So if you means-test pensions, then, over time, millions of people will save less or not at all and you will, over time, have to pay more people, more means-tested benefits. Then the cost will be so huge that you will have to cut the means-tested benefits. And people will be poorer.

In addition - and this is far beyond the ken of the Treasury - people will also have had their sense of self-sufficiency profoundly undermined and they might, in the process, be further alienated from the society in which they live. They would have every justification in loathing politicians (and senior civil servants) who get it wrong, leading them down the garden path.

It is a dangerous to have social policy framed by the Treasury. That is the lesson of the past 60 years.

The Turner Commission, while I doubt I agree with it all, is far more sensible than Gordon Brown. The report also has useful figures.

Posted by James Bartholomew • Indexed in Pensions

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December 05, 2005

Monday

MPs should have a pay cut and pensions like ours

An article by me on MP's pay and pensions is on the First Post website here.

Posted by James Bartholomew • Indexed in Pensions

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November 28, 2005

Monday

More and more of us will be over 65

Currently 19% of the population is of state pensionable age. By 2055, that proportion will have risen to 26%. It is a simple statistic that supports the idea that either the state pension age must rise or the amounts paid in state pensions and benefits must fall further below average earnings. The statistic is fromPension Facts, a collection of useful data, from the Pensions Policy Institute.

Posted by James Bartholomew • Indexed in Pensions

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November 17, 2005

Thursday

The fall and fall of the state pension

The welfare state in its most ambitious form simply could not be afforded. So bits of the building have been quietly allowed to fall off. NHS dentistry has been in decline for a long time. So have NHS spectacle. Council housing is gradually declining as a proportion of total housing stock. And another thing that has been found to cost too much is a relatively high level of state pension from the age of 65. It has steadily declined in relation to average incomes (and been replaced, to a large extent, by the disastrous means-tested pension credit).

The papers today have a story that the state pension age could be raised to 67. This will be a long overdue acceptance of vastly increased longevity. It is an example of the way the state is very slow to respond to changes in reality, in marked contrast to mutual or commercial providers. Even now, the the proposal is only that. It is not an act of parliament. More concrete are the figures that came out in yesterday's papers:

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Posted by James Bartholomew • Indexed in Pensions

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October 10, 2005

Monday

'Living longer must mean working longer' OECD

An extract from an OECD press release today:

If there is no change in work patterns, the ratio of older inactive persons per worker will almost double in the OECD area over the next decades, from around 38% in 2000 to just over 70% in 2050.

The full press release is below.

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OECD - Paris, 10 October 2005
Living longer must mean working longer, says OECD

In an era of population ageing, we can no longer afford to waste the valuable resources that older workers offer to business, the economy and society. That is the message from a new OECD report to be discussed at a high-level forum on Ageing and Employment Policies in Brussels on 17-18 October.

At present, many public policies and workplace practices discourage older people from carrying on working. On average in OECD countries, fewer than 60% of people aged between 50 and 64 have a job, compared with 75% of people in the 25-49 age group (see Chart 1).

Such policies and practices are relics of a bygone age and unsustainable at a time when population ageing is straining public finances and holding back higher living standards. If there is no change in work patterns, the ratio of older inactive persons per worker will almost double in the OECD area over the next decades, from around 38% in 2000 to just over 70% in 2050.

This, in turn, would lead to higher taxes and/or lower benefits, coupled with slower economic growth. On the basis of unchanged patterns, OECD analysis shows, GDP growth per capita in the OECD area could shrink to around 1.7 % per year over the next three decades, about 30% below the average annual rates witnessed between 1970 and 2000.

To avoid such an outcome, the OECD argues, age-friendly employment policies are needed to encourage older people to remain longer in the workforce. At present, average effective retirement ages are well below official retirement ages in many countries, especially European countries (see Chart 2). While countries have begun to take action – notably in the area of pension reform – more needs to be done.

The OECD recommends action in three key areas:

Governments should ensure that pensions and other welfare arrangements encourage rather than discourage work at older ages. They should also devote adequate resources to help older jobseekers find a new job.
Employers must end discrimination and adapt work practices to an age-diverse workforce. The practice of mandatory retirement in firms should be questioned, as it is inconsistent with the general objective of providing greater choice to older workers on when to retire.
Older workers themselves will need to change their attitudes towards working longer and acquiring new skills – there is a training gap between older and younger workers in all countries, but in some countries it is particularly large (see Chart 3).
On 17 October, government officials, social partners, academics and representatives of civil society will meet at Palais d’Egmont in Brussels to discuss the main lessons that have emerged from an OECD review of policies in 21 OECD countries to promote employment of older workers. These discussions will be open to the media.

On 18 October, ministers and senior officials will meet in closed session to discuss a range of issues, including: how best to make later retirement more attractive; how to change entrenched attitudes; and how to promote the employability of older workers. A press conference will be held at 3.00 p.m. on Tuesday 18 October at Palais d'Egmont.

Information on the forum and access to summaries of the separate country reports that have been prepared for 21 OECD countries can be found on the following site:

www.oecd.org\olderworkersforum

Wrap up extended reading.

Posted by James Bartholomew • Indexed in Pensions

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June 14, 2005

Tuesday

Why don't people save?

People don't save enough for their retirements.

People in their 30s could be forced to continue working until they are more than 74 unless they dramatically increase the amount they save, an insurer has warned. Prudential said people in their 30s were setting a side an average of just £62 a month towards their retirement - £340 a month less than they need to.
The group said in order for someone on average earnings to retire at 65 on two-thirds of their pre-retirement income, including money they would get from the state pension, they should actually be saving around £400 a month

Why don't people save more?

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There are two reasons for the under-saving. First, the government strongly disincentivises saving by the poor. Most means tested benefits are not payable to anyone with financial assets of more than a specified amount. It used to be £15,000 - I don't know the up-to-date figure. But it means that anyone who is - or thinks that in the future they might be - on means tested benefits, has a strong disincentive to avoid having savings of any substance.

Gordon Brown has added to this the Pension Credit which is a means-tested benefit for the elderly. This has pushed the discouragement to saving up towards those of more means. The pension credit means the benefit of saving - including saving through a pension fund - are seriously reduced unless one accumulates well over £100,000.

The second way in which the government has discouraged saving is through the state pension. The existence of the state pension makes people think, 'The state is looking after my pension. I don't need to think about it'. At some point in their lives, they discover this is not true. The state will not look after them in old age. The state pension is tiny. But they often discover the truth too late to do anything about it.

An honest politician would say: "Don't rely on the state pension. It is very small and it is continuing to get smaller compared to average incomes."

A decent politician would take means testing out of the equation by easing out the pension credit.

An open-minded politician would, as Peter Lilley did, propose a new pension scheme for younger people which would be invested in stocks, shares and bank deposits.

A radical politician would propose the gradual but wholesale abolition of the state pension, leaving only income support for those people who had made no provision for their old age. That is the policy that would have the most dramatic effect in encouraging a saving culture in Britain, just as it has a dramatic effect in Hong Kong.

The article quoted come from the
Daily Mail

Wrap up extended reading.

Posted by James Bartholomew • Indexed in Pensions

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June 12, 2005

Sunday

The scandal of public servant pensions

Five million out of 5.7 million public sector employees (88 per cent) have final salary pensions. Meanwhile only 3.6 million out of 22.5 million private sector employees (about 16 per cent) have final salary pensions.

These figures, accourding to the Sunday Telegraph, will be published by the Government Actuary's Department on Thursday. There have been a fall of one million in those in the private sector who are on final salary schemes over the past five years. That is largely the effect of Gordon Brown's tax on dividends received by pension funds which has helped make final salary pension schemes just too expensive for private companies. But what is too expensive for private companies, is not too expensive for taxpayers to pay for.

The civil servant, the teacher and the hospital manager all get relatively luxurious, final salary pensions, courtesy of taxpayers. The MPs and the prime minister get the most luxurious pensions of all.

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Posted by James Bartholomew • Indexed in Media, including BBC bias • Pensions • Waste in public services

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June 09, 2005

Thursday

No improvement for the old since Labour came to power

I do not accept the use of the word 'poverty' as redefined by Left-wing propagandists, but it is probably still worth mentioning the following. It shows that, even by the Left's own standards and measures, it has failed the elderly.

The National Pensioners Convention (NPC) said an estimated 2.2 million older people, the equivalent of one in five pensioners, currently lived below the poverty line, the same number as in 1997.

The above is from Tiscali News. According to the Daily Mail, the NPC is a Left-leaning organisation.

Posted by James Bartholomew • Indexed in Pensions

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May 19, 2005

Thursday

Taxpayers' money wasted on excessive public sector pensions

More and more state spending is going towards paying the pensions of public sector workers.

This is from Patience Wheatcroft of the Times via the Civitas blog:

'In Greater Manchester, total pension payments for fire-fighters are put at £30.4 million in 2005-06, compared with salary costs of £74.9 million. This amounts to a doubling of pension payments in the past eight years... Council tax payers in the area have seen the amount that they pay for fire services rise by 68% over those eight years… [But] net of inflation and pensions, the Fire Authority’s budget has actually reduced by 7% over the period.’

There is nothing wrong, in principle, with money being spent on the pensions of public sector workers. The problem is with the practice. From the taxpayers' point of view, these pensions are unnecessarily and wastefully big, for two reasons:

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Posted by James Bartholomew • Indexed in Pensions • Waste in public services

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April 24, 2005

Sunday

The rising public-sector-worker national debt

According to Stephen Yeo, an actuary at Watson Wyatt, the bill taxpayers will have to pay for the final salary pensions of the five million public sector workers has risen dramatically in the last two years from £425 billion to £700 billion. That is nearly twice the size of the national debt, yet you will not find it in the Treasury's accounts.

From an article by George Trefgarne in the Daily Telegraph.

Posted by James Bartholomew • Indexed in Pensions

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April 04, 2005

Monday

Are people able to look after themselves?

A key issue for those of us who believe the state is bad at looking after people, is whether or not individuals are any good at it either.

This is Tim Congdon in the Telegraph today on the competence or otherwise of people in saving:

Much of economic theory is concerned to establish that people are rational. But theoreticians and practitioners do not always see eye to eye. When confronted with real-world problems, economists are inclined to forget that they live in a world of rational agents.
Indeed, they are quite unembarrassed about offering recommendations to politicians which make sense only if people are rather silly. A good example is the recent report from the Pensions Commission, under the chairmanship of Adair Turner.

It says flatly: "Most people do not make rational decisions about long-term savings without encouragement and advice.'' The report proceeds from this patronising remark to recommend increased state involvement in pension provision, with a consequent enlargement of the government's role in the economy and a rise in taxation.

Professor Congdon goes on to look at the overall savings people make including saving that is not labelled "pension saving" but which nonetheless can be used for that purpose. He concludes that people are perfectly rational. His analysis may be open to challenge. But I want to mention another area in which the rationality of people in looking after themselves may be in doubt.

In America, people have to pay for their own healthcare. But in the same country, the incidence of obesity is very high. Why, when they must know that being fat increases their chances of premature death and early use of expensive healthcare, do so many Americans allow themselves to become fat? It does not seem sensible or rational.

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Posted by James Bartholomew • Indexed in General • NHS • Pensions • Welfare benefits

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