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LuckyOne

Unfunded Public Pensions .......

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According to the Telegraph, ponzi schemes like unfunded public pensions collapse when they can't attract enough new money to pay out existing members .....

http://blogs.telegraph.co.uk/finance/ianmcowie/100006636/state-pension-ponzi-scheme-unravels-with-retirement-at-70/

A harsh but fair analysis ......

None of them seem to have a clue what to do about this pensions fiasco that is now enslaving our young and bankrupting the state.

Facts need to be faced. Pensions need to be reduced. The state pension was reducing quite nicely under labour, given that it was linked to prices not wage growth. But even this started to go wrong as private sector wages went into reverse.

Perhaps what we need is to ensure that the ratio of workers to pensioners is as fixed as it can be. Doing so stops the state pension getting out of control, and automatically moves the retirement age.

As for public sector pensions, they need to be cut. All those currently retired must have their pensions reduced to a level we can afford. A cap at £30,000 a year seems like a good suggestion. Those still working need to have the likely benefits cut too. All future benefits going forward, should be paid for privately. That is the government and the worker should both contribute to private schemes, and the pension will be paid out of that.

Something like this needs to be done. Without something radical, the state will fail, and those on the state pension, or on a public sector pension, will get nothing at all.

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Guest sillybear2

Many unfunded public pension schemes already pay out twice what they collect in "contributions" and the shortfall is made up by the government, even the concept of "employee contributions" is a bit of a joke, it's all just money from the government at the end of the day.

That said, our state pension is the least generous in the developed world, but the civil service would rather throw it over board first in order to protect their completely unsustainable schemes. But of course the public sector has a double-standard for itself.

"Facts need to be faced. Pensions need to be reduced. The state pension was reducing quite nicely under labour, given that it was linked to prices not wage growth. But even this started to go wrong as private sector wages went into reverse. "

The problem is it was also pushing increasing numbers on to means testing, which a total disincentive to save for yourself.

Edited by sillybear2

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Many unfunded public pension schemes already pay out twice what they collect in "contributions" and the shortfall is made up by the government, even the concept of "employee contributions" is a bit of a joke, it's all just money from the government at the end of the day.

That said, our state pension is the least generous in the developed world, but the civil service would rather throw it over board first in order to protect their completely unsustainable schemes. But of course the public sector has a double-standard for itself.

"Facts need to be faced. Pensions need to be reduced. The state pension was reducing quite nicely under labour, given that it was linked to prices not wage growth. But even this started to go wrong as private sector wages went into reverse. "

The problem is it was also pushing increasing numbers on to means testing, which a total disincentive to save for yourself.

An idea that was floated here (I can't remember if it was my idea or someone else's) a while ago is for audited national accounts following GAAP (an income statement and a balance sheet) to be sent to each household in the UK annually.

In the private sector, pension accounting requires the net of the actuarial value of pension obligations and the assets and hedges owned to satisfy the obligations to be reported on the balance sheet. Changes in the net value flow through the income statement. I do not unbderstand how governments can get away with exluding the obligations from their debt and deficit numbers.

Increasing longevity, collapsing long term interest rates and increases in the size of the public sector mean that the state's obligations are rising massively. As the obligations are not completely funded or hedged, the offsets on the asset side of the balance sheet are nowhere near enough to prevent a massive worsening of our fiscal situation on a GAAP basis.

I would love to know the actuarial NPV of pension obligations and offsetting assets and hedges in this country. At a wild guess, I could imagine that the number is in the order of 2 tn and is worsening by 150 bn a year. If these numbers were included in national accounts, our debt and deficit numbers would be much worse than currently being reported to taxpayers and lenders.

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Guest sillybear2

Increasing longevity, collapsing long term interest rates and increases in the size of the public sector mean that the state's obligations are rising massively. As the obligations are not completely funded or hedged, the offsets on the asset side of the balance sheet are nowhere near enough to prevent a massive worsening of our fiscal situation on a GAAP basis.

But interest rates have no impact on the state pension for obvious reasons, the only thing that matters is the balance of people in work contributing v. those drawing benefits, it's a direct transfer of resources so the monetary base doesn't really come into it (borrowing aside). So you keep things in balance by making people retire later and increasing the number of people in work by tackling welfare dependency, the spending on pensions would still rise due to demographic reasons, but if you can fund that by cutting back in other welfare spending then it's essentially neutral.

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But interest rates have no impact on the state pension for obvious reasons, the only thing that matters is the balance of people in work contributing v. those drawing benefits, it's a direct transfer of resources so the monetary base doesn't really come into it (borrowing aside). So you keep things in balance by making people retire later and increasing the number of people in work by tackling welfare dependency, the spending on pensions would still rise due to demographic reasons, but if you can fund that by cutting back in other welfare spending then it's essentially neutral.

Governments have implicitly convinced the general public to take the logical leap of faith that public sector pension accounting should be done on an accrual (pay as you go) basis. At the same time, they have forced private sector pension accounting to be done on a mark to market basis.

My view is that mark to market accounting is more appropriate for all pension accounting and not just private sector accounting.

The hit to the debt and deficit of changing from accrual accounting to mark to market accounting for public sector pensions would be massive so the government perpetuates an accounting methodology for the public sector that would result in people going to jail for fraud if it were applied in the private sector.

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Governments have implicitly convinced the general public to take the logical leap of faith that public sector pension accounting should be done on an accrual (pay as you go) basis. At the same time, they have forced private sector pension accounting to be done on a mark to market basis.

My view is that mark to market accounting is more appropriate for all pension accounting and not just private sector accounting.

The hit to the debt and deficit of changing from accrual accounting to mark to market accounting for public sector pensions would be massive so the government perpetuates an accounting methodology for the public sector that would result in people going to jail for fraud if it were applied in the private sector.

Agreed, but it goes far beyond pensions of course, if you ran a private company the same way the state runs its accounts, or like its twin hydra in the form of the banking sector, then you'd get shutdown for fraud or trading whilst insolvent. They rely on the fact the state is eternal, so by implication its liabilities can also be infinite, and of course they can debase the medium of exchange at will. We've had the BoE for over 300 years and we still haven't paid down that original £1.2m national debt.

The changes you talk about could never be made, if they shutdown nearly every department of state and taxed everyone at 90% the money still wouldn't be there. It's a confidence game innit, one that will increasingly be paid for by the young in the form of debt, poor working conditions and a diminishing standard of living, such are the delights of fiat money and bull$hit promises when they meet reality.

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Agreed, but it goes far beyond pensions of course, if you ran a private company the same way the state runs its accounts, or like its twin hydra in the form of the banking sector, then you'd get shutdown for fraud or trading whilst insolvent. They rely on the fact the state is eternal, so by implication its liabilities can also be infinite, and of course they can debase the medium of exchange at will. We've had the BoE for over 300 years and we still haven't paid down that original £1.2m national debt.

The changes you talk about could never be made, if they shutdown nearly every department of state and taxed everyone at 90% the money still wouldn't be there. It's a confidence game innit, one that will increasingly be paid for by the young in the form of debt, poor working conditions and a diminishing standard of living, such are the delights of fiat money and bull$hit promises when they meet reality.

Agreed.

Maintaining wealth in an era where there is no guaranteed store of value is a complex problem.

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I know a couple a husband/wife on state pension who've contributed zilch in NI.

They're parents of a immigrant naturalized ,who then is allowed to bring over parents.

I dont begrudge but anomolies like this shows that this system has so many

'natural' flaws you wonder how it got off the ground originally.

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Guest sillybear2

Agreed.

Maintaining wealth in an era where there is no guaranteed store of value is a complex problem.

The Telegraph article mentions the Barlow Clowes Affair, quite interesting :-

http://www.managementtoday.co.uk/search/article/409293/uk-lessons-systematic-swindler-barlow-clowes-affair/

Passing off bull$hit gilt edge investments as safe, then robbing people, imagine that.

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The Telegraph article mentions the Barlow Clowes Affair, quite interesting :-

http://www.managementtoday.co.uk/search/article/409293/uk-lessons-systematic-swindler-barlow-clowes-affair/

Passing off bull$hit gilt edge investments as safe, then robbing people, imagine that.

Very interesting. It reinforces my view that the large majority of investors make at least one of two fundamental errors :

- They assume that people who charge money to look after investments know more than those who have accumulated the investments in the first place.

- They invest in "products" rather than actual assets (physical shares, physical bonds, physical commodities, physical properties etc). As soon as investments are made in anything other than actual assets, investors expose themselves to fees, fraud and delivery problems.

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Guest Noodle

Sure I'll get hideously flamed for this, but I have this year been in a semi-retired condition. Now, I have no rent/mortgage and I don't have expensive tastes and okay I'm else where and wotnot.

I cannot for the life of me understand why some pensions are supposed to pay out vast sums every year . . . for what? To spend on what?

If you've reached retirement age, particularly these days, you're all done. The house is paid for, you have all your personal infrastructure complete . . . it's tricky to get rid of tens of thousands a year, I mean it would take serious effort and well, retirement isn't about effort . . . is it? :huh:

Guess it comes down to this final salary scheme palaver.

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Sure I'll get hideously flamed for this, but I have this year been in a semi-retired condition. Now, I have no rent/mortgage and I don't have expensive tastes and okay I'm else where and wotnot.

I cannot for the life of me understand why some pensions are supposed to pay out vast sums every year . . . for what? To spend on what?

If you've reached retirement age, particularly these days, you're all done. The house is paid for, you have all your personal infrastructure complete . . . it's tricky to get rid of tens of thousands a year, I mean it would take serious effort and well, retirement isn't about effort . . . is it? huh.gif

Guess it comes down to this final salary scheme palaver.

cruises and sportscars

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Sure I'll get hideously flamed for this, but I have this year been in a semi-retired condition. Now, I have no rent/mortgage and I don't have expensive tastes and okay I'm else where and wotnot.

I cannot for the life of me understand why some pensions are supposed to pay out vast sums every year . . . for what? To spend on what?

If you've reached retirement age, particularly these days, you're all done. The house is paid for, you have all your personal infrastructure complete . . . it's tricky to get rid of tens of thousands a year, I mean it would take serious effort and well, retirement isn't about effort . . . is it? :huh:

Guess it comes down to this final salary scheme palaver.

BTL mortgages B)

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Guest Noodle

cruises and sportscars

Funny you should mention.

Thai chap from this village just visiting, lives in Miami, concierge on those massive liners says most of those sailing were both British and old.

Never one to deny oldies that last dance, but some of the numbers mentioned regards annual pension income are . . . quite lavish.

Not saying it's right or wrong, just trying to understand it.

Edited by Noodle

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Funny you should mention.

Thai chap from this village just visiting, lives in Miami, concierge on those massive liners says most of those sailing were both British and old.

Never one to deny oldies that last dance, but some of the numbers mentioned regards annual pension income are . . . quite lavish.

Not saying it's right or wrong, just trying to understand it.

Is that a nice name for a gigolo?

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Funny you should mention.

Thai chap from this village just visiting, lives in Miami, concierge on those massive liners says most of those sailing were both British and old.

Never one to deny oldies that last dance, but some of the numbers mentioned regards annual pension income are . . . quite lavish.

I strongly suspect these are public sector OR private sector final salary that haven't folded - any indicators on that score?

so we could be saying that it is a relatively unique problem to Britain? does that sound right?

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Sure I'll get hideously flamed for this, but I have this year been in a semi-retired condition. Now, I have no rent/mortgage and I don't have expensive tastes and okay I'm else where and wotnot.

I cannot for the life of me understand why some pensions are supposed to pay out vast sums every year . . . for what? To spend on what?

If you've reached retirement age, particularly these days, you're all done. The house is paid for, you have all your personal infrastructure complete . . . it's tricky to get rid of tens of thousands a year, I mean it would take serious effort and well, retirement isn't about effort . . . is it? :huh:

Guess it comes down to this final salary scheme palaver.

It's not difficult to spend tens of thousands a year in the UK. I guess wanting a large pension is like wanting a large amount of savings. After a certain level you don't really need it but you like having it there just in case.

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"Facts need to be faced. Pensions need to be reduced. The state pension was reducing quite nicely under labour, given that it was linked to prices not wage growth. But even this started to go wrong as private sector wages went into reverse. "

I disagree. Reducing pension benefits will only convince staff that they are having money stolen from them by the government (I realise that this is a highly flawed belief). An alternative is to give state employees the option to fund these pensions in the same way as the typical private sector post, i.e. by making sufficient contributions. For example, if the terms are currently 1/60 of final salary for every year worked, change this to 1/80 (or whatever the appropriate figure is) for current contributions, or allow the option of paying the required rate to maintain 1/60. This money should actually go into a pension fund and salaries should not be increased to compensate.

We do not necessarily need to reduce pension levels, however we do need to start appropriately funding them.

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Guest Noodle

Is that a nice name for a gigolo?

:lol: Not to stereotype a particular sub-culture, but it had crossed my mind and his motor (that he uses once a year for about a month) cost more than this house.

I think they get paid very well. The trick apparently is to give them 5 lobsters when they only order 2 since it's all paid for in advance and pick up a large tip. Or was it crabs? :huh:

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Guest Noodle

It's not difficult to spend tens of thousands a year in the UK. I guess wanting a large pension is like wanting a large amount of savings. After a certain level you don't really need it but you like having it there just in case.

It isn't difficult I'll grant you. Mother dear is retired on a state and very small NHS pension but goes everywhere, does all sorts of things, very active.

Yes, I can see the security issue.

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Guest sillybear2

It's not difficult to spend tens of thousands a year in the UK. I guess wanting a large pension is like wanting a large amount of savings. After a certain level you don't really need it but you like having it there just in case.

Savings are one thing, but demanding unearned 'entitlements' by extracting wealth from other people is something else entirely, especially when younger people are already struggling with student debts, poor job prospects without perks, rising taxes and the intergenerational wealth transference system known as the 'housing market'. Maybe people just don't realise how lucky they are, but it's doing real harm.

I know people do pass wealth down, but then you have an aristocracy of ever concentrated wealth in the hands of the few, but extracted from the masses in various forms.

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Savings are one thing, but demanding unearned 'entitlements' by extracting wealth from other people is something else entirely, especially when younger people are already struggling with student debts, poor job prospects without perks, rising taxes and the intergenerational wealth transference system known as the 'housing market'. Maybe people just don't realise how lucky they are, but it's doing real harm.

I know people do pass wealth down, but then you have an aristocracy of ever concentrated wealth in the hands of the few, but extracted from the masses in various forms.

I have no argument with you. I don't think it's just down to the housing market though - government seems pretty good at extracting value to give to their pet projects.

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I disagree. Reducing pension benefits will only convince staff that they are having money stolen from them by the government (I realise that this is a highly flawed belief). An alternative is to give state employees the option to fund these pensions in the same way as the typical private sector post, i.e. by making sufficient contributions. For example, if the terms are currently 1/60 of final salary for every year worked, change this to 1/80 (or whatever the appropriate figure is) for current contributions, or allow the option of paying the required rate to maintain 1/60. This money should actually go into a pension fund and salaries should not be increased to compensate.

We do not necessarily need to reduce pension levels, however we do need to start appropriately funding them.

What you quoted was from leicestersq, not me.

I'm not sure such huge liabilities could be funded without entering into the paradox of thrift, you just get ever larger sums of capital chasing the same asset base, driving yields ever lower and bubbles ever higher. At the end of the day it all comes down to a wealth transference exercise no matter what instrument you use, it doesn't matter if it takes the form of tax, gilts, usury or rent seeking. Are there enough investment opportunities available to produce sufficient returns? Our system is predicated on infinite growth fueled by the assumption of endless cheap and abundant energy and natural resources.

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Guest Noodle

I strongly suspect these are public sector OR private sector final salary that haven't folded - any indicators on that score?

so we could be saying that it is a relatively unique problem to Britain? does that sound right?

Well he asked why so many geriatric British women died their hair blue. If that's anything to go by.

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  • 259 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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