Saturday, Dec 20, 2008
Grandson, can you spare me £32,000 ?
Telegraph: The biggest Ponzi scheme: Bernard Madoff's or the British Government's?
Public sector gold-plated pension schemes are either inadequately funded or completely unfunded – that is, having insufficient or no money set aside to pay pensions in future – children who have not yet been born will have to pay more tax decades hence to deliver promises already made to people on the public payroll now. Just as Bernard Madoff is alleged to have relied on payments in from new investors to pay out returns and promote a $50 billion (£33 billion) fund that scarcely existed, our Government continues to issue promises which it hopes future generations will honour. If the whole bill for public sector pension rights already accrued fell on today's taxpayers, it would amount to £32,000 per person.
Posted by drewster @ 12:29 AM (517 views) Add Comment
18 Comments
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1. mark wadsworth said...
£32,000 per taxpayer, not £32,000 per person.
And if we knock out the 8 million public sector people, that makes it £40,000 per taxpayer.
Can I just send them a cheque now?
2. Maihem said...
This is why the pound is collapsing. The government /must/ print massive quantities of pounds soon and international investors know it. I just hope they give them to savers so they don't steal hard earned savings. Thing is, then nobody but useless dumbarses will be willing to do things for the British government.
3. Maihem said...
Oooh, they could tax entry to government offices. The public sector pensions would turn into a forced savings scheme or they can resign and lose their pension!
4. drewster said...
I wouldn't do that Mark, you'll never get it back! It'll be like that scene in the Simpsons where Monty Burns gives a million dollar cheque to Fidel Castro. You'll give your £32,000 to Gordon Brown, and he'll look at you and say "what cheque?"
5. little professor said...
I've heard this argument before - all publicly funded pension schemes are essentially legally-mandated Ponzi schemes, where the payouts to current investors are funded by the payments of the new recruits to the scheme.
6. bidin'matime said...
LP - if only it was as simple as that, we could just leave them to get on with it - the trouble is that the future funding will come largely from those of us who will not and could never enjoy benefits of the scheme...
7. goweresque said...
We all know that the taxpayer funded public sector pension schemes cannot continue forever. It is merely a question of when it reaches a critical point. Public sector employment continues its merry way upward whatever the economic situation, and govts continue to increase public sector pay. Those 2 factors will eventually create a situation where over half your council tax, for example, goes to prop up public sector pensions. There will be a backlash, when, who knows? We all know that a situation that cannot continue for ever, doesn't.
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9. letthemfall said...
The public sector pensions are a favourite target for attack, often by individuals like McPhail, a very highly paid person who makes his money from investors in personal pensions. The problem, however, is broader. All pension schemes have a problem because of life expectancy rises, poor investment management, and the end of a long bull market in stocks. One reason so many private final-salary schemes went under was the foolish decision of employers to take a contributions holiday during the good times - yet another example of wealthy individuals creaming off money where they could.
Public pensions are being reformed - increased contributions and higher retirement ages have recently been introduced. Instead of complaining about the quality of public schemes, it would be better to demand an improvement in private ones. Considering society has been getting richer (bubbles notwithstanding) the fact that pensions are in such a bad state is one harsh corollary of the rise in wealth funneling into the pockets of the few, none of whom is employed by the public sector.
10. spencer234 said...
letthemall - can you explain where exactly the money is going to come from for the public sector pensions? How are we going to find one trillion, let alone the funds to keep the pensions in line with inflation?
It might have escaped your notice but Brown did change the rules on private sector pensions which caused massive shortfalls. In fact, he was explicitly warned what would happen.
http://business.scotsman.com/business/No-joke-Brown-knew-hed.3359139.jp
Most people are not employed by big business but by small businesses, which can barely stay afloat already, so how are they supposed to find the money for similar £20k/annum pensions as are being given to public sector employees?
I'd be genuinely interested to see if you can come up with answers for these shortfalls, that didn't involved printing money that is.
11. letthemfall said...
Public sector employees do not all automatically get £20k pensions; that is a common misunderstanding. Many end with very small pensions because they do not have the years of service, or the level of salary at the end of service. But it is true that a final salary scheme is a good one compared to the alternatives; these are examplars of how a good scheme should be organised.
As for public sector deficits, well the figures quoted vary widely. But they are no doubt large given the state of the stock markets now. (The dividend tax credit is very old news and is only a part of the problem.) Pensions for the private sector should be of a similar standard, taking into account other forms of remuneration of course (public sector workers do not get cars, medical insurance and other benefits); the only way to do this is to have a fairer system which taxes progressively and avoids channelling a large proportion of the country's wealth into the pockets of a rich elite. Trying to pull down the decent public sector pensions will not achieve this, even if it makes you feel better.
You may wish to take a look at this article in the Guardian (http://www.guardian.co.uk/money/2008/dec/19/pensions-bill-2006), which has rather more substantial comments on the matter than the above flimsy rubbish from the Telegraph.
12. spencer234 said...
letthemfall - you are dodging a very simple question. Even if we take the government's figures from 2006, there were unfunded pensions to the tune £650bn with most experts concurring that at the very least it's now reached over £915bn. http://www.guardian.co.uk/money/2008/dec/15/cbi-pensions-politics-public-sector
Just do the maths. Every single year, to keep up with inflation, another £40bn or so gets added to the bill. The government's other liabilities mean that we are already struggling to service debt let alone find another £40bn or so annually. The government is losing money and is budgeted to do so for the next few years (when like magic things are supposed get better) so we will just be racking up more and more interest and more and more interest on the interest.
The average public sector pension is around £20k per year, and will be inflation adjusted.
The dividend may be old news to you, as you're clearly fine on a public sector pension, but it's not old news to anyone who's suffering because of it. It is 110% responsible.
Answer the question: where is the money going to come from? And no it's not going to come from rising stocks. When has any recent government ever had a budget surplus of £100bn or so that will be required to pay off the interest, pension inflation and some of the debt?
13. spencer234 said...
lettemfall - most private sector workers do not get cars, private healthcare etc - the majority of people working in the private sector work for small businesses.
And I don't wish to pull anything down - but the reality is we don't have the money for these pensions as anyone looking closely at the figures must see.
14. letthemfall said...
110% responsible, spencer234? And you tell me to do the maths?
Deficits are calculated on the basis of certain assumptions far into the future, which may or may not be valid. Therefore apparently large deficits do not always require instant reaction, even if long-term responses are needed. (Incidentally, public schemes are affected by the tax credit clawback too).
Do not make assumptions about my pension position. As it happens I have a mix of provision, details of which I am not about to discuss. Pensions need serious discussion and long-term planning. What we do not need is widespread complaining about the privileged public sector by employees in the private. The public sector can equally complain about advantages enjoyed in the private sector (for some anyway). It's just that public pensions happen to be the favourite target at the moment. There are many imbalances in this country that need solving; having a go at a group of supposedly privileged people will solve nothing.
15. bidin'matime said...
Letthemfall - the simple fact is that most public sector schemes are not affected by the tax credit clawback, because they are UNFUNDED... Others have correctly pointed out that you are dodging the issue - unfunded means there aint no funds...! they will have to be paid by the rest of us and our children and grandchildren.
If you have private pensions as well as public sectors pension(s), then you will know how much you would need to put by in a private pension to match the public sector pension - for most people in public sector schemes, the fall in annuity rates over the last 10 years means that the effective value of their pension funds has risen to a level that they could never have dreamed of achieving through investment in a money purchase scheme.
So people who can never aspire to the level of a public sector pension will have to work longer and pay more tax in order for public sector workers can retire early and enjoy a comfortable old age – I fear that if this basic unfairness is not resolved fairly soon, the respect for the public sector in general will deteriorate, with unfortunate consequences.
16. spencer234 said...
110% was for emphasis ltf. Never seen that before, eh so have to make a silly remark about me not being able to do maths. Hmm.
You still seem unable to explain how a trillion pound liabiliy can ever be funded, without crippling the private sector and therefore the UK economy. This is nothing to do with "having a go", it's about simple economics and facing up to a huge black hole in government finances.
But on a point of principle, you cannot expect people in the private sector, faced with paltry pensions (as your Guardian article made clear), to be happy about paying through the nose for people in the public sector.
The reality is that a government is going to have to tackle this issue, and public sector workers, who have been duped into thinking their pensions are secure, are going to be in for a nasty shock. If something isn't done about it, the country will literally become bankrupt and there will come a time when we won't even be able to pay the interest. That means more public sector jobs will be at risk long-term.
17. letthemfall said...
spencer: no sillier than your use of an innumerate cliche to make your point.
bidn'matime: I am not dodging the issue, although I am trying to offer a more balanced view of a difficult situation that effects all pensions, including the state pension. I get a little weary of the partisan attacks by some individuals here, similar to the vituperation aimed at BTL (which I admit has more justification). But I don't have any great argument with your points, although for most public pensions the contributions (which are not small and have been increased lately) of current public employees & employers go to pay current pensioners. Clearly for demographic reasons (and lack of attentive management) a big liability has opened out over the years.
On the question of comparative contributions into private and public pensions, I did some calculations a few years ago on this. This returns to my point about assumptions used to make these estimates. Back then on modest assumptions I worked out that a private pension could be better then a public final salary scheme. Things are rather different now. But of course the risk-free nature of the public scheme ensures it is nearly always the best bet.
Attacks here on the public sector schemes are generally based on the notion that public sector employees are paid far more then private, plus they get a fantastic pension to boot. That I think is a fallacy, despite some of the statistics thrown around. The most well off pensioners I know are members of private company schemes, whereas public sector retirees I know are on very modest incomes. I cannot accept the view that the public sector is paid more then the private, especially at higher levels, based on my experience of both sectors. Look at some of the salary scales in the NHS, councils, etc. In the case of the very low paid this may be true, which perhaps highlights the more general problem, which is a huge level of inequality that has grown up in this society, especially in the private sector. That is the problem that needs addressing, of which the public pension liability is only one part. Rancorous attacks on a section of society on the grounds that it is taking money away from another will solve nothing. As for the "respect for the public sector" - well, does it exist? Not much evidence on this site anyway.
18. spencer234 said...
letthemfall - if I'd known that using a "cliche" would have offended so much...
Now if I apologise profusely, will you just answer the very simple question of where this money can be found without bankrupting the country?