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Public Pensions In 'death Spiral' Due To 'madoff Economics'

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Telegraph 28/11/13

'The generous pensions afforded to public sector workers are in a “death spiral” having run like a Ponzi scheme, a leading academic has claimed. Michael Johnson, a research fellow at the Centre for Policy Studies, a think tank, likened the funding of public sector pensions to the disastrous scam peddled by Bernie Madoff, who was sent to prison after investors lost billions.

In a research paper, Mr Johnson urged the Government to rethink a promise not to reform public pensions for 25 years, calling on ministers to take urgent action to prevent public schemes collapsing.

He said: “Successive governments, irrespective of political hue, have, for decades, acted with irresponsible abandon when making provision for their own staff’s pensions.

“Pension promises have historically been worth roughly 35pc of salary, yet contributions have been only around 21pc: pure Madoff economics."

He said that reforms currently under way – such as raising the retirement age and moving to pensions based on average salary rather final earnings – “will not rescue public service pensions”.

He raised particular concern over the funding of the Local Government Pension Scheme, which covers the retirements of 5.2m people – almost 10pc of the population.

Members of the Local Government Pension Scheme range from street cleaners to social workers. The fund has around £200bn in assets.

Mr Johnson said the scheme will struggle to keep its pensions promises, which include a guarantee that payouts will rise with inflation.

This is mostly because contributions are woefully insufficient: payouts are rising around 3pc a year due to inflation, but stagnant wages mean that employees in the public sector are not paying more towards the costs.

In addition, the scheme comprises of 101 sub-funds. These are failing to grow due to “excessive costs” and “abysmally lax governance”, Mr Johnson said.

He said the scheme must cut costs by investing in cheaper passive funds, such as “trackers” that follow the growth of specific stock market indices. Using economies of scale and other efficiencies such as a single administrative platform could cut costs by £860m a year, he said.'

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No one cares because the youngsters and immigrunts will pay for it all.

I don't think they will. They'll vote not to

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I don't think they will. They'll vote not to

We'll take the vote off them.

Like mass homeownership, democracy and the vote is only a recent phenomenon.

Edited by 7 Year Itch

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No one cares because the youngsters and immigrunts will pay for it all.

He's talking about people yet to retire, not the already retired. That means youngsters and immigrunts are some of those not paying enough NOW for their pension expectation. We ALL pay for the public sector's underfunded pensions, old and young alike. Don't go about thinking there's a magic age when the taxman gives you a free ride, if you were prudent and had a private pension (which I DON'T recommend, having done that) you'll be stiffed in retirement by the taxman. I even got the pleasure of paying £40 income tax for a pension payment I never received. The rules, I was told.

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Underfunded pension schemes can be sorted simply by capping the payouts at what the fund can bear. Obviously "promises" will have to be broken, but not promises that were made by the current government.

The real problem is where there is no fund at all, eg the police.

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Underfunded pension schemes can be sorted simply by capping the payouts at what the fund can bear. Obviously "promises" will have to be broken, but not promises that were made by the current government.

The real problem is where there is no fund at all, eg the police.

Yep on both counts. I foresee a watershed moment when the two tier pension systems being established at the moment (e.g. the University scheme being divided into a Final Salary section and a Career Revalued Benefits section) are challenged legally. It's equal treatment for all members vs. old promises. At the moment, old promises keep winning but the tension will keep growing.

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The real problem is where there is no fund at all, eg the police.

I don't call that a problem. I call that an opportunity to give them nothing.

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I don't call that a problem. I call that an opportunity to give them nothing.

How it seems to be going in Detroit...what are they having to settle for 13% on the dollar? 17%?

Unfortunately, our un-devolved, un-federal set up will probably mean the NHS stops paying its leccy and drugs bills before a civil servant loses a penny from 'their' pension.

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How it seems to be going in Detroit...what are they having to settle for 13% on the dollar? 17%?

Unfortunately, our un-devolved, un-federal set up will probably mean the NHS stops paying its leccy and drugs bills before a civil servant loses a penny from 'their' pension.

I would guess most public sector pensions are going to default within 10 years.

I guess they'll 30p in the pound, or allowed to delay til 75 for a greater amount.

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How it seems to be going in Detroit...what are they having to settle for 13% on the dollar? 17%?

Unfortunately, our un-devolved, un-federal set up will probably mean the NHS stops paying its leccy and drugs bills before a civil servant loses a penny from 'their' pension.

Often pondered this one, it does seem that public sector pension promises actually come before all else; they would wouldn't they, those that make the rules have their eyes on their own 7 figure packages. Indeed people will die for want of medicine so the few can have a feather bedded retirement at the expensive of the many.

Already you have a situation where money honestly saved in ordinary savings account is liable to confiscation if the amount exceeds 85k. Meanwhile a public sector retiree who gets twice the rewards they have paid in have their benefits protected come what may.

Edited by crashmonitor

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Think Tank, indeed.

It's a lobbying group for the tory party and their ilk.

It is a lobby group for #Capitalism . Thus by definition it is not a lobby group for Tories

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All the city boys must be desperate for civil service jobs, the pension are so good. :rolleyes:

Sounds like the politics of envy to me. :lol:

Think Tank, indeed.

It's a lobbying group for the tory party and their ilk.

Yeah, this. Amazing how these shills for sinister corporate interests get to come on news programs and spout their propaganda without having to declare their interests, like everybody else does. George Monbiot wrote a very good article about this the other day:

http://www.theguardian.com/commentisfree/2013/nov/29/thinktank-bbc-smoking-big-tobacco

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The government really needs to re-assess this idea of providing employee pensions.

There's a whole load of administration and bureaucracy involved, made worse by their constantly moving the goalposts and dealing with the protests, strikes and disgruntled workforce. It's not worth the effort.

Where did this idea that your employer is the best person to deal with your savings come from? The government doesn't have a great track record with savings and budgeting.

There is of course the argument that people won't save if you don't take it out their pay packet before they can spend it. Surely that's what welfare is for and the state pension (fancy name for benefits). Even if it just shifts the bulk of the problems from one department to another it will take out a whole layer of bull$hit that we don't need.

Government - stop doing pensions - you're crap at them.

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Forget the pensions for now what about the wages 130K (around what our PM gets) for a medium sized school head that has changed its name to an academy to justify maybe, I really do give up on this :angry:

edit link

http://www.yorkshireeveningpost.co.uk/news/latest-news/top-stories/leeds-school-begins-search-for-new-130-000-a-year-principal-1-6290463

Edited by papag

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Forget the pensions for now what about the wages 130K (around what our PM gets) for a medium sized school head that has changed its name to an academy to justify maybe, I really do give up on this :angry:

edit link

http://www.yorkshireeveningpost.co.uk/news/latest-news/top-stories/leeds-school-begins-search-for-new-130-000-a-year-principal-1-6290463

If that upsets you then you'd better not look at how many Local Government Officers are on over £100k too...

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Yeah, this. Amazing how these shills for sinister corporate interests get to come on news programs and spout their propaganda without having to declare their interests, like everybody else does. George Monbiot wrote a very good article about this the other day:

http://www.theguardian.com/commentisfree/2013/nov/29/thinktank-bbc-smoking-big-tobacco

+1 Although this is one issue we can't afford to ignore, you really do have to question the motives behind all this rhetoric.

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