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Why do they pay for the pensions of the previous generation ? Surely they should pay for pensions for the people who contributed to them .
Because there is no huge pot of money. Just taxation.
Cos the previous generation didn't pay enough and someone has to make up the shortfall.
I get even crosserer when they fill potholes on SOMEONE ELSE's street with MY tax!
Cos the previous generation didn't pay enough, [b]continue to take too much[/b], and someone has to make up the shortfall
Ftfy
Because the previous generation had to pay for the generation before that.
The previous generation paid for the nurses and teachers who delivered and educated you...
It is an unfunded scheme. Today's contributions pay today's pensions. Can you really imagine government having a pension fund invested? No way, everything is pay as you go
It depends on what 'pension contributions' you're referring to. The State Pension is paid out of current tax/NI, but personal pensions only pay out what was paid in for you, and defined benefit schemes must (in the private sector) be 'funded' within limits.
Paying state benefits from income makes sense given the underlying assumption that there will always be taxpayers to fund it. If the state pension was building up a fund, it would need to be used somehow - like 'investing' in infrastructure, which wouldnt be much different to what happens, just accounted for differently.
It's a Ponzi scheme
Polite answer: pyramid scheme
Realistic answer; a ponzi version
Be afraid, very afraid...
Public sector pensions = Government Ponzi scheme paid by everyone paying tax. Unless the Government finds the seeds to the magic money tree and plants its soon, the economic impact of having more retirees than we have taxpayers is going to be catastrophic. Made worse as many of those workers have skills where there are significant shortfalls, burdened by student loans and simply not enough people in education and discouraging EU immigration. Bizzarely, one solution would be large scale immigration of skilled workers from Asia - can see the Brexies liking that one!
Isnt the Norwegian pension fund one of biggest pots of money? So big they can use it to influence the direction of goverments and businesses.
Seems more sensible that our choice of spending money of ships and bombs and stuff which neither influences or funds our retirements.
Probably an over simplification of course.
The most important thing is to put away money you have today to pay for living in the future when you can't/don't work.
If you want to retire at 60, and you think you'll live til you're 90, and you start work when you're 20, that's earning for only ~58% of your life when you need to pay for yourself.
Given, you'll have paid off your mortgage by then with some luck. But you need to be putting away at least 20% of all your earnings if you want a decent life when you can't or don't work, from the day you start work.
The longer you leave it, the more % of your earnings youll need to put away, as you'll be getting a return on your investment, and that return accumulates year on year.
Do not rely on the state pension.
I firmly believe we will be guided into personal investments that the government subsidises, rather than a state pension (e.g. Lifetime ISA)
Savings, investments, pensions and government subsidies needs to be taught in schools.
The government has already started offloading their responsibilities onto employers in preparation for the money running out.
Unless the Government finds the seeds to the magic money tree
They already have - it's called Government Borrowing
I'm 34, and have always just assumed that I'll never see a penny of state pension. I'm paying into a private scheme but I expect that real retirement will be only be for the very wealthy by the time I reach 65(ish) so my pension will be to fund working fewer hours in my old age.
It'll be OK, students starting university this year will probably paying off their student loans into their 50s, and might have saved-up enough of a deposit on a house by then so by extending the retirement age they'll still have 15 years to pay for their retirement!
I think if you're under 50 and think you'll ever be 'retiring' in anything like the present meaning of the word, you probably need to give yourself a slap and a dose of reality.
Like unknown, I just assume I'll never 'retire' . I've got a couple of private pensions that will probably be worth a packet of Werthers Originals a week as I piss away my last in abject poverty. Hey ho!
Our scheme is called "auto enrolment" it's a brilliant system, we pay for our own pensions as the OP suggested.
Sadly we also pay high VAT, Duty NI and Tax to fund current retirees and maybe the next 10-15 years of new retirees.
we pay 4 times as much for a roof over our heads as the retirees to ensure their private pensions pay out and they can release money for cruises.
We pay more than they did for utilities, because they sold them.
We pay more for trains, because they sold them.
There's a couple more of them...
The only people who lose in Ponzi schemes are the last investors - which might be us
The news just now is saying that the deficit for the British university [s]ponzi[/s] pension scheme presently stands at 17 billion. I've no doubt that pretty much every other [s]ponzi[/s] pension scheme is in similar shape
You're not retiring. Ever!
Current forecasts for state pension affordability aren't that bad, from 5% to 7% of national income.
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https://www.ifs.org.uk/publications/9238
To all of you moaning about so called ponzi pensions (and by the way, you repeatedly calling them that doesn't make it true) you do realise that you come across as Generation Whinge don't you? It isn't all one way either. For example we chose not to have kids. However we have had to pay plenty of tax to educate other people's kids, quite probably some of you. We don't have the slightest problem with doing that as those kids then earn money and pay taxes that will ultimately pay our pensions. That's just society in action, each generation paying something towards the upkeep of the other.
And something else. I was made redundant last year at the age of 52 (ironically from a company making tons of money from auto enrolment). I can't get another job because all the companies want younger people ( you lot in other words) so that's 14 years I will have to somehow finance myself until I get my state pension. However I'm not complaining about your generation hogging all the well paid jobs.
If you want a decent retirement then start planning now. We made lots of financial sacrifices, and paid into pension schemes of our own, in order that we would be comfortable in our later years. We also funded the generation that went before us. Nobody moaned or complained, they just got on with it.
Should just stop paying out pensions and paying into them too.
Nothing's guaranteed, don't expect the state to bail you out.
@ dovebiker
Unless the Government finds the seeds to the magic money tree and plants its soon, the economic impact of having more retirees than we have taxpayers is going to be catastrophic.
the government knwos where there is a forest of them. Thats how it can find £1bn to bribe the DUP and fund taxcuts for the wealthiest. The majority of magic money tree forests are in tax havens that are British Colonies that could be shut down overnight if the government chose to. It wont because the people and companies who use them are the ones that fund the Tory Party and provide the cushy jobs for ex ministers.
Generation Whinge eh?
Can't say I agree with that but you do realise that people my age, or maybe a bit younger, will probably be the first generation to be worse off than their parents. We aren't making money from property like the previous generation did for a start, goodness only knows what the state pension age will be if we ever reach it, and er... thanks for Brexit you old farts. I'd say that entitles folk to a wee bit of a whinge, no?
I think it would be better for everybody , apart from people who sell private pensions , if there was just a state pension and if you wanted to pay more into it you could and you would get more out come retirement . That way you would only be paying for one set of people to manage your investment , therefore you would ultimately get more out come the time . I'm sure that I read of a country that does that , might have been Norway or perhaps Denmark .
I think it would be better for everybody , apart from people who sell private pensions , if there was just a state pension and if you wanted to pay more into it you could and you would get more out come retirement . That way you would only be paying for one set of people to manage your investment , therefore you would ultimately get more out come the time . I'm sure that I read of a country that does that , might have been Norway or perhaps Denmark .
Except the state pension isn't a fund you can pay into and isn't invested. It just gets paid out of tax receipts like all other expenditure.
So could we not start now, better late than never etc.?
On the separate point of buying a pension, if I get to 65 with say 500k in the bank giving that to some spiv who promises to give me back 10k a year seems very bad value.
Better to pocket it even with a tax hit shirley.
You'd need a large input of money to get it off the ground. Maybe by investing the taxes from a natural resources windfall. Unfortunately Thatcher et al frittered ours away.
On the separate point of buying a pension, if I get to 65 with say 500k in the bank giving that to some spiv who promises to give me back 10k a year seems very bad value.
Do you mean annuities?
That looks like a shit annuity to me.
You also don't need one. Pensions Freedom opened up Pensions Flexibility. You can take 25% of your entire pot tax free. So £125k you take yourself, invest it how you see fit, pay off your mortgage etc. and it's all yours, not a penny goes as tax.
The rest, you can do whatever you like, leave it invested, convert to drawdown and take income, or buy some kind of secure income. Lots of different products are being offered now.
Remember though, whatever you take of that remaining 75% you will pay at the standard rate of income.
£500k is a pretty good target, if you're on ~£60k a year, that would maintain your lifestyle.
£500k is a pretty good target, if you're on ~£60k a year, that would maintain your lifestyle
How?
£500k is a pretty good target, if you're on ~£60k a year, that would maintain your lifestyle.
That's a pretty aggressive draw down rate, rule of thumb I normally see discussed is 4%, so for a 60k annual payout would be looking at a £1.5m pot
if you're on ~£60k a year, that would maintain your lifestyle.
I think he means current gross income. Pension providers work on the basis that you need 60% of your current gross income retirement (adjusst for inflation, natch) to maintain your current lifestyle.
When you factor in lower overall tax bill, no saving toward pension, no mortgage etc, etc, then it sounds about right.
Whether a pension pot of £500k would generate income of £40k is another matter...
I think he means current gross income. Pension providers work on the basis that you need 60% of your current gross income retirement (adjusst for inflation, natch) to maintain your current lifestyle.When you factor in lower overall tax bill, no saving toward pension, no mortgage etc, etc, then it sounds about right.
Whether a pension pot of £500k would generate income of £40k is another matter...
Spot on, cheers 🙂 Was too late to reply.
Yes, adjusted for having very little outgoings (including no new bikes, as you just spent part of that £125k on a custom built titanium hardtail).
That's a pretty aggressive draw down rate, rule of thumb I normally see discussed is 4%, so for a 60k annual payout would be looking at a £1.5m pot
You won't need £60k post retirement. You'll have paid off your mortgage, won't be paying into your pension, your investments will level out, kids will have grown up and left, student fees paid, hopefully new house for them deposit paid already, your income tax will be under the higher rate, you won't be communiting everyday etc....
I'd reckon if you're on £60k before tax, you could easily live on £30k post-retirement, with some of that £125k well invested in a mix of income funds.
That's the point I've made on these threads before- 65 would be a good age for a male in my family 75 is unheard of, so getting as much money as possible at 65 with as little debt as possible seems like the best option for me.
Utility bills cover by £150 a week from UK plc and a Yorkshire BS book stuffed full of cash for beer and ale looks ok to me given its needs to last 10yrs max then send me off in style.
The whole annuity thing just looks like the last swiz tbh. I suppose its down to insurance actuary's bets vs mine.
The state pension and indeed any final salary / career average is a Ponzi scheme.
We run ours like that as it makes it appear cheaper than it really is. Other countries use a system where you (and your employer) save for yourself.
@footflaps thise charts are meaningles s(based on total guesswork of future variables), how about if inflation is 10% and the economy shrinks ? How about Greece ?
Pension pots only generate what the market will pay, today £500k will give you about £17k pa but it depends on a lot of things not least flat payment or rising with inflation.
Yup annuities are imo a total rip off.
I don't think that £500k is going to generate an annual income of £30K. That's a withdrawal rate of of 6% which is highly likely to leave you broke before you die.
I reckon you could safely get 20K pa which I think will be a big hit for someone who was on 60K. Don't get me wrong, it's decent amount to live on but it's nowhere near 60K is it?
Corbyn's pension is estimate to be worth the equivalent of about £1.5m which is what you would need to buy a £50k pa pension which is roughly what he has.
The state pension and indeed any final salary / career average is a Ponzi scheme
Only the unfunded public sector schemes resemble a Ponzi. Because of the fairly harsh accounting rules, private sector schemes are now decidedly not Ponzi. If your private sector scheme is fully funded (many aren't at present) then the scheme should be able to pay all of its liabilities even if everyone stopped paying in today.
State pension and most public sector schemes are unfunded because no politician can be trusted with a large pile of cash. Showing how much those schemes actually cost wouldn't be very popular with the masses either.
Yup annuities are imo a total rip off.
Or turn it around and say that guarantees are very expensive at the moment.
jambalaya - Member
Corbyn's pension is estimate to be worth the equivalent of about £1.5m which is what you would need to buy a £50k pa pension which is roughly what he has.
Much like any other MP? Or is corbyn of particular relevance?
We know people are going to get old and need money, why not just fund it properly from gdp?
Is it a job for our kids to sort out?
I don't think that £500k is going to generate an annual income of £30K
Yep, my bad, I'm including the state pension in that calc too, so I'm using about £665k over about 20 years. Sorry, should always show your workings 😉
I make a point of asking people how much they think they need at retirement as a pot of cash to maintain their lifestyle, it's surprising how many have no idea.
The state p[ension schemes are not a ponzi scheme - thats lazy words by people who hate the fact we get decent pensions.
Its not our fault the government did not invest the money but chose to use it a form of taxation and spent it instead to lower your taxrs. If the NHS pension contributions had been invested it would be the largest investment fund in the worl. Its also hugely in surplus taking in £ 1 000 000 more in contributions each year than it pays out in pensions.
Part of the deal with us accepting public service in exchange for lowish salaries is that we would get decent pensions. to now retrospectively change this is hugely unfair.
the avrage NHS pension is less than £9000 pa - and we are contracted out of SERPS as well.
Just because the private sector allowd their bosses to shaft them on pensions does not mean we should be shafted as well
@jam bo; no, not like any other mp. Corbyn's length of 'service' generates the 'entitlement' and it's perfectly ok to use him as a reference point.
I have spent a lot of time over the last 3 months with my financial adviser sorting out my affairs and it's frightening to know how little understanding most people have of financial planning and pensions.
As for public service pensions - i have read some dubious comments but ^^^ takes some beating. Working in the public sector is a career choice; it has nothing to do with any 'trade off' for lower salaries in exchange for higher final salary pensions.
The truth is that public sector salaries now exceed those into private sector for comparable roles.
I can see this thread turning into another p*s*ing contest.
[quote=frankconway ]As for public service pensions - i have read some dubious comments but ^^^ takes some beating. Working in the public sector is a career choice; it has nothing to do with any 'trade off' for lower salaries in exchange for higher final salary pensions.
That has long been the accepted position. In fact there was a thread earlier this week referring to relatively low NHS salaries being "worth more" because of the pension provision. It's true that some Public Sector jobs are now very handsomely paid but I've a feeling that they're mainly at the very top of the pyramid. Having said that, Retail, Catering and Tourism are all full of minimum wage and zero hours contracts so it's not as clear as it once was.
Re salaries [url= https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/articles/publicandprivatesectorearnings/2014-03-10 ]https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/articles/publicandprivatesectorearnings/2014-03-10[/url]
1. Key points
Average pay levels vary between the public and private sectors because of the different jobs and characteristics of the people within each sector
In April 2013 it is estimated that on average the pay of the public sector was between 2.2% and 3.1% higher after adjusting for the different jobs and personal characteristics of the workers
The average pay difference in favour of the public sector has narrowed since the year 2010, which in part reflects the restraints on public sector pay over this period
On average large organisations tend to earn more than small organisations and the public sector generally consists of large organisations (over 500 employees) whereas the private sector is more evenly split between large and smaller organisations
After further adjusting for the different organisation sizes between the public and private sector, in April 2013 it is estimated that on average the pay of the public sector was between 1.3% and 2.4% lower than the private sector
Looking at those who are among the lowest earners in each sector, using the bottom 5% as a cut off point, public sector workers earned on average around 13% more than private sector workers in 2013 when adjusting for the different jobs and personal characteristics of the workers. When further adjusting for the different organisational sizes the estimate was around 8% more
For the higher earners, using the top 5% as a cut off point, public sector workers earned on average around 6% less than private sector workers in 2013 when adjusting for the different jobs and personal characteristics of the workers. When further adjusting for the different organisational sizes the estimate was around 11% less
Looking more locally across the UK in 2013, when adjusting for the different jobs and personal characteristics of the workers, on average, Northern Ireland had the largest pay difference in favour of the public sector at 15% (7% when adjusting for organisation size). Public sector workers, on average, earned 8% less (11% less when adjusting for organisation size) than private sector workers in London.
Comparing low and high earners, London had the largest variation between public and private sector in April 2013. Among the lowest earners in each sector, using the bottom 5% as a cut off point, public sector workers earned 20% more (15% more when adjusting for organisation size) than private sector workers. For the higher earners, using the top 5% as a cut off point, public sector workers earned 24% less (28% less when adjusting for organisation size) than private sector workers
[url= http://www.rosaltmann.com/public_sector_pensions.htm ]http://www.rosaltmann.com/public_sector_pensions.htm[/url]
The truly worrying thing is the fact that members of pyramid/ponzi schemes don't realise it until its too late...despite many warnings
Great analysis. Thanks towzer
Fwiw ifs this year
Figure 3 shows how the difference between public sector and private sector pay has changed since 1997. The dark green line compares average hourly pay in the public sector to that in the private sector. It shows that in 2016–17, average public sector pay was 13% higher than private sector pay. The grey line makes some adjustments for the types of workers in each sector. Primarily because the public sector is mainly staffed by highly educated professionals, once adjusting for observed differences in a set of workers’ characteristics, the estimated pay differential is much smaller.[4]The Figure shows that public sector pay rose relative to private sector pay after the recession, as private sector pay fell sharply in real terms. The public sector pay restraint imposed since 2011 has returned the difference between public and private pay to around its pre-crisis level.
Pay As You Go is a more accurate description than Ponzi. Government can either invest contributions as TJ suggested, or use the money to fund the current account. The downside of investing contributions is the government then has to increase borrowing to make good on the shortfall. Swings and roundabouts.
It's not PAYG and doesn't fund the current account - so hard to comment. It is a pyramid scheme though, that is clear. Hence the current angst. If you depend on the state for your pension you need to know these things - its important, be prepared....
frankconway - Member
@jam bo; no, not like any other mp. Corbyn's length of 'service' generates the 'entitlement' and it's perfectly ok to use him as a reference point.
So Ken Clark, the father of the house wouldn't have been a better example.
The truth is that public sector salaries now exceed those into private sector for comparable roles.
Really? Actually really?
Just short of 500,000 teachers in state schools in England and Scotland. significantly fewer in independent schools. In Scotland all teachers contribute to the same pension pot at the same rate. Independent schools pay 6%+ over state schools so not more.
Policing, which private police force pays less?
Nursing? Show me the figures.
Fire service.
Military.
Let's see some numbers.
shinton - Member
Pay As You Go is a more accurate description than Ponzi. Government can either invest contributions as TJ suggested, or use the money to fund the current account. The downside of investing contributions is the government then has to increase borrowing to make good on the shortfall. Swings and roundabouts.
The bigger problem is an increased life expectancy, those taking money out now and in the next 10 years won't have put in enough to cover them to start with. Couple that with an aging population and there isn't enough going in to cover the gaps. whatever people in their 20's/30's put in won't be enough. NI etc. is in reality nothing more than taxation and the bills are going up.
It's also the reason final salary schemes were all shut down as they simply didn't take in enough to deliver the pay outs when people lived a bit longer.
...for comparable roles
You've picked one role, teaching. The ONS have picked thousands.
Those are the numbers in the ONS survey.
THe real problem is that the private sector has been allowed to get away with making the pensions it offers worse and worse over time so directors and shareholders can take more profit.
Personally I think pensions should be treated as deferred income, as thats what they are really, and accounted for in that way. This would mean that companies would be forced to properly fund pension schemes before any profit is declared and returned to shareholders. To my mind it is scandalous that companies can pay dividends and declare profits when they havent accounted for the true cost of the pensions they have agreed to incur
The triple lock makes the whole thing worse too - more unsustainable and more volatile. Madness.
Local government scheme is funded by invested money that comes from employee and employer contributions.
The authority I work for fund is in surplus at the moment.
It's all other teacher, civil service, fire, police etc schemes that are payg
I picked one that I know and have personal experience of and so have "fact" for.
Let's see the comparable numbers.
The institute for fiscal studies finds no evidence of a pay differential in the hourly rate for men. (2014)
Public sector and state pensions are benefits. Employer and employee contributions, NI creates the sense there is a fund where there isn't. In the National Accounts they are classified as benefits ( or certainly were last time I looked a couple of years ago). So they are no more a Ponzi scheme than other public spending, it's the language around it that creates that sense.
Once it is understood as a benefit paid from the overall tax pot ( including public sector pension contributions) then problem is easier to define. Recent govts are changing the rules on when and how much the benefit pays and increasing the payments in. Is it enough, time will tell, depends s lot in life expectancy increases growing or tailing off.
Btw do the pay comparisons quoted above take account of increase public sector pension contributions which are basically a pay cut as defined as cut it take home pay?
@footflaps thise charts are meaningles s(based on total guesswork of future variables), how about if inflation is 10% and the economy shrinks ? How about Greece ?
What you actually mean is they don't support your childish assertion that it's a Ponzi scheme.
What they do show (and the research behind them), is that given current demographics, the current state pension scheme is quite affordable with only a modest increase required to fund it. Obviously, they haven't considered that we suddenly turn into Greece, but then that's not a very likely solution.
Surely you should be arguing that now we have your utopian Brexit, the economy will surge to as yet unseen highs and we can double or treble state pensions will all the extra revenue from the huge boost to GDP which Brexit has unleeshed?