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Pensions: will you live long enough to retire?

Public sector workers are striking over pension reforms. We could all be up in arms if moves to put back the state retirement age are not handled fairly.

 
Pensions: will you live long enough to retire? There wasn’t much to be cheerful about in the chancellor’s Autumn Statement. One piece of bad news tucked away amongst all the others was that anyone under the age of 52 will have to wait longer to receive their state pension. 

From 2026, the state pension age will increase to 67. This is eight years earlier than the original plan which would have seen the increase take place between 2034 and 2036. This measure is expected to save around £60 billion in today's prices between 2026-27 and 2035-36.

An estimated eight million individuals in their 50s will have to delay retirement by a year. The move brings Britain into line with the United States, Netherlands, Germany, Denmark, Spain and Australia which have all increased pension ages. George Osborne said the change would allow the government to, ‘go on paying a decent pension to people who are living longer.’ 

Increased life expectancy

‘This is a necessary step towards getting the system back on balance, and some might argue it could be accelerated even further,’ said Fraser Smart, managing director of pensions advisors Buck Consultants. ‘Faced with a rapidly ageing population, the government has been forced to address the current cost of benefits in the UK, to avoid things coming home to roost when we can least afford it.’

Plan ahead

John Perks, managing director of retirement solutions at insurer LV=, points out that, ‘many people may need to reassess their retirement plans. We urge the government to now provide stability with regards to pension legislation, to allow people to plan for retirement with a degree of comfort that the plans they put in place will be effective at the point they retire.’
 
Recent research from LV= showed that people currently aged 50, on average said they would ideally like to retire at age 61, but realistically thought they would be able to retire just before turning 65. ‘This is unlikely to remain the case for the majority when taking into account the shift in when they could receive a state pension,’ said Perks.
 
Some 6.1 million over-50s already expect to work past the current state retirement age, and on average those planning to work past state retirement age will work for an extra six years, which would see men retiring at 71 and women at 66 based on today’s retirement age. 

Perks makes the point that it is important for individuals to plan and take professional advice. ‘For instance, if people are retiring later in life they are more likely to qualify for an enhanced annuity when they eventually do retire, which makes a significant difference to the income they will receive for the rest of their life.’ Enhanced annuities are paid to those in ill health at a higher rate because their life expectancy is shorter.

He also suggests taking into account property assets. LV= research showed that a third of today’s over-50s, some two million people, look set to use the equity in their home to help supplement their retirement income in the future through equity withdrawal or downsizing.

Major problems

But there are several major problems. Moves to put back the state retirement age are all predicated on people being able to work longer. While the changes are necessary they impinge heavily on those now in their forties and fifties who currently face possible redundancy with real difficulty in getting another job – let alone working to age 67. And what will this do for youth unemployment? 

That is not the end of the story. The government said there could be further increases ‘based on demographic evidence’ a polite way of saying retirement ages could move even higher. But will the government bring the retirement age back down when we all start dying off earlier through obesity or stress? Almost certainly not. 

There is also considerable inequity in the changes too. Later retirement hits low income families harder than wealthier middle class couples. There is considerable evidence that manual workers leading a tougher life on lower incomes than the professional classes have a much shorter life expectancy. Many will not live long enough to draw any pension at all. Is this fair?
 
Life expectancy at the current state pension age of 60 for women and 65 for men is improving by between 1.5 years and 2 years every decade. The state pension age rise just announced comes seven years after the rise in state pension age from 65 to 66 starts in 2019. This is broadly in line with rising life expectancy.

John Lawson, head of pension policy at Standard Life, said: ‘State pension age looks like it has developed its own seven-year itch. At this rate, someone in their early-20s today will not receive their state pension until age 71 and someone aged 40 today will have to wait until they are 68 before they receive their reward for a lifetime of work or caring. The message is clear – if you want to control your retirement age, don't rely on the state.  Make your own plans.’

53 comments so far. Why not have your say?

Philmo

Nov 30, 2011 at 13:52

I think ALL state and private pension schemes should be stopped, and all the accumulated funds nationalised and put into a National Pension Scheme which would be contributed to on a mandatory basis by all. Everyone at all levels would contribute the same 10% or whatever %age figure is needed to viably provide a pension of 67% of their life average annual earnings [inc bonuses etc] on retirement at 67 yrs and no earlier. [including teachers, bankers, civil servants, LGO's, MoD staff, MP's, police, fire service, etc NO exceptions and NO favours for any employment class]

The NPS would be run/invested by a quango team of specialists appointed for the purpose and monitored/supervised with transparent six monthly public performance reporting by BoE or similar independent, competent body.

If people want more than the 67% average [I find it adequate] then they could separately save in addition, but the benefit cannot be taken until age 67.

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alan thorburn

Nov 30, 2011 at 13:53

Point to ponder:- Just because people LIVE longer it doesn`t necessarily mean that they can WORK longer. It will perhaps depend on the physical demands of their jobs. eg. A worker in the building trade has a more physically demanding

job than a teacher or an office pen pusher!

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Paul 2

Nov 30, 2011 at 13:55

The government could offer a savings product that pays out a monthly income from a specified age, for example 65, and ceases on the holder reaching state pension age, whatever that actually turns out to be for the individual in question.

The income could be taxable or tax free. Obviously a better rate could be offered if the income was taxable (including the return of capital element in the 'income'). However, the advantage of the income being paid tax free is that the product would not appeal particularly to non-UK residents or those planning to emigrate, because they might be taxed on the full amount in their country of residence. Further, since much of the 'income' would be return of capital, it would not be illogical for such payments to be tax free.

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Jonathan

Nov 30, 2011 at 13:56

And extra year added to your pension age means an extra year of NI contributions and not collecting £5,300 for a year. So it means a lot of people have lost about £8k with yesterday's news.

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alan thorburn

Nov 30, 2011 at 14:10

The point many are not getting is that private pensions are paid from funds accrued during working life, whereas"Public Sector" pensions are paid from current revenue!!

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Jon

Nov 30, 2011 at 14:18

Jonathan - 8k is nothing, especially as it is a known amount. Over the past 10 years a person with a private pension has seen their annuity rates drop every year, despite the fact that they are getting older and will therefore draw the annuity for fewer years. A rough example is that a fund to buy a £15k pension at age 55 10 years ago will now, despite a 4% growth pa, now provide an annuity of only some £12k or less - so the person has lost 10 years at £15k plus the rest of their retirement at £3k pa - so the total loss is around £190k.

This is the stark result of living longer, low annuity (interest) rates and other changes to annuity and pension fund regulations.

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Martin Drew

Nov 30, 2011 at 14:38

What is forgotten by many is that when the state pension came in it was to ensure that when people retired a couple of years before they died they would have enough income to enable them to continue in their own home as they gently faded away. Before that they went to the workhouse, which by the 1930's was usually called something like the infirmary, but was essentially the same thing without the work. It was never intended to provide a long holiday for the last 20 years of people's lives. Of course it isn't the fault of those in their 50s that successive governments ducked the issue and are now having to push the pension age up. Pension age should have risen automatically along with the rise in life expectancy - maybe not on a year by year basis, but maybe for every two years of life expectancy the pension age went up a year. If that had been implemented from Day 1 we would now have a retirement age of about 72 I guess; no-one would think it odd and there would be no problem paying adequate pension to everyone, rather than the somewhat inadequate pensions many people are now on.

With a million young people out of work raising the pension age at all creates other problems, and some would argue we would be better off converting the jobseekers allowance money the young get into an early pension fund and giving older people the option to quit early and make way for an unemployed youngster. Because politicians are almost always too feeble to take difficult decisions we continuously find ourselves trying to shut the stable door after the horse has bolted, which is what is happening now with state pensions. The late Sir Brian Wolfson said something along the lines that a good businessman had saved enough money to pay for his next mistake before he made it, an average businessman had paid for his last mistake before he made the next one and a bad businessman was still paying for his last mistake when he made the next one. If we rank governments the same way I don't think we have had anything but bad ones in my lifetime.

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bigand

Nov 30, 2011 at 14:47

Philmo - please tell me you were never in charge of anything more than paperclips during your working life. Either that or you are a very witty person thinking up the dumbest idea since making toilet paper with big holes in it.

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Philmo

Nov 30, 2011 at 14:56

Alan T

The older manual skilled should progress to supervisory and traing roles.

Yes everybody should be in a National Pension Scheme which is fully funded. Why should the pension bill pass to our children/grand children? No justification.

bigand

Were you trying ever so hard to be constructive or just your usual pleasant self?

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David Harvey

Nov 30, 2011 at 15:16

Well, What about letting the over 50's go part time if they want to and can afford it? Some people who have their house paid off or are comfortable in some way might like to. It seems to me that we need the vibrant young minds working. Later retirement and youth unemployment at the same time doesn't seem helpful.

I will keep saying that I know first hand from my work that living longer doesn't mean able to work longer, this is a huge jigsaw piece the we often choose to ignore. What about employers? they can't be made to keep older people in place if those people can't deliver or aren't safe. There is also the unfair playing field of health which is a genetic lottery and, the occupational health where a person is worn out from working hard.

They dribbled on about paying pensioners a fair amount across the board what happened to that? They said the country needs older people in the work place, siting some bloke working as a greeter at a supermarket, how many greeters do they need? Then after all the spin had been put on the value placed on older people, who got laid of first from public sector? mainly over 50's.

I do agree with Martin D that we haven't had a good government in certainly my life time.

Close a few corporate tax loopholes and we could all retire tomorrow.

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Colin Gregg

Nov 30, 2011 at 15:17

@ alan thorburn...

You've got it in one!

Working Life expectancy cannot be seen as increasing at the same rate as Life Expectancy.

Yes, people live longer on average now but their fitness and mental alertness does not keep pace (in most cases) with actual age.

Expecting nurses to still lift patients at age 68...70...71? ...is simply not realistic.

Expecting teachers to continue to battle classes of 30+ recalcitrant teenagers at those ages is - likewise - living in Cuckoo-land! The detachment of youth from their "elders" is already well-noted in society, so respect for older teachers will deteriorate still further.

As for the wider public vs private pensions debate per se, I see no reason for us to seek the lowest denominator here: if private pensions have been under-funded because of previous governments' actions resulting in their closure, blame the government, not the public sector workers who have paid in under contract all their lives!

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bigand

Nov 30, 2011 at 15:19

Philmo - so you meant it - wow sorry, I can’t be constructive because there isn’t any fraction of it that has a glimmer of a good idea. I am not going to disseminate it word by word because I wouldn’t waste my typing fingers with a cogent argument over something so preposterous.

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David Harvey

Nov 30, 2011 at 15:28

Colin G. this whole this has been orchestrated to get us at each others throats. Any of us could of applied for a public service job. If everyone agreed that we are "all" getting screwed and stood up for our selves Cameron might not be making the noises he is.

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Philmo

Nov 30, 2011 at 15:54

So bigand

You would leave the greedy to get richer the less able to get poorer and the poor sods in the middle to be screwed by the insurance/pension industry if not by HMG?

I see you found an excuse to continue being non-constructive!

[BTW did you fall off a clock at some time?]

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Mac Kotecha

Nov 30, 2011 at 16:41

If pensions are indexed with 50% spouse pension the actual costs more than double! A lot of these also have death benefits which include a pension for children in full time until that ends. (I know of at least two NHS superannuation scheme have this.)

Annuity rates have dropped from 10% plus to approx 4% with lower interest rates and longer life spans.

If the government was a company, it would have gone into adminstration and then there would have been very cut down basic pensions for past service and none for future. The government is doing a poor job in expressing the situation.

Also MPs should also be taking a HIT on their very generous pensions. 'We are all together'. I believe 66% of final salary just after 20 years rather then 40 years for others.!

The suggested pensions offer preserve past service at old rates.

These are siimply not sustainable with aging population and reducing workforce as the mix of population has more than 20% that is over 85!!!!

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bigand

Nov 30, 2011 at 16:47

Philmo - yes it hurt as I fell, absolutely no I would not trust past/current/future HMG with anything let alone my future. You could guarantee additional - cost, management, waste, overhead, inefficiency, mismanagement.

And before you ask I will be on nowhere near 67% when I retire, more like 33%

This is a general question but as life expectancy has increased has anyone calculated what someone would get out of a pension retiring at 65 in 1960 on a final salary scheme, as opposed to retiring at 67 in 2026 on the combination of final salary and career average as regard public sector plans, and living until the relevant life expectancy of those decades. Would we find we are getting more out or less (allowing for inflation).

So my thinking is 7 (or whatever it was) years on the equivalent salary 1960

and

14 years on the 2026 equivalent.

Anyone out there calculated this?

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Jonathan

Nov 30, 2011 at 17:15

Mac Kotecha,

MPs' should definitely be setting an example with their pensions. They should get exactly the same pension deals as the people in the civil service they are setting the pension policies for.

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Jonathan

Nov 30, 2011 at 17:19

bigand,

The idea with average salary pensions is that your pension fund doesn't get robbed by people who get big promotions just near retirement and end up taking a large final salary pension. There is this corruption in the civil service and a lot of senior civil servants are given big pay rises a year or two before they retire. Average pensions are a much fairer way of handing out pension, particularly when the members contribute to the fund as they get out an amount which is a proportion of what they have put in. Also the payback ration should be higher as you generally start out on a lower salary and finish on a higher one. So a 60th final salary is more like a 45th average one.

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Philmo

Nov 30, 2011 at 17:52

Too true Johnathan!

Brief analysis shows the proportion of overtime pay to police officers in the final 5 years of their employ is disproportionately high!

Also have you ever checked out the annual cost of police pensions compared with the annual salaries bill? Unbelievable!

It's the early finish of course which does it and it's not sustainable.

Why can't older police take up management/back office/training roles after completion of their active tour of duty?

Similar problem with fire service pensions, not to mention MoD where many, after "retiring" carry on in the same role on a contract basis! We're paying these people twice out of our hard earned!

It's a great gravy train for some!

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alan franklin

Nov 30, 2011 at 19:42

I manage our own SIPP and have done so successfully for years.

Unfortunately, due to government regulation, thousands of pounds is wasted every year paying professionals to keep an eye on me and stop me from defrauding my wife and myself (the only two in our fund.)

Our pensions were fixed at a modest sum for the past five years: no rises for inflation. During this time, due to good stewardship, I kept the value of the fund more or less stable. Last year the average dividend yield was 5.5 per cent, though some stocks are non-dividend paying.

Each year I choose a stock to sell, take a profit (I have never sold at a loss), add this to the dividends and pay ourselves, less monumental taxes, less accountants' fees, less "advisors' fees) - they don't actually advise me on anything to do with investing.

Anyway, this year, without warning, our pensions were cut by a third. This despite the fact that the fund had increased over 25 per cent since last being valued in 2010.

The reason: BIg dumb government stuck its oar in. They say that, if I was invested in gilts, I would be able to draw less. Therefore, I must draw less. The fact that I am not stupid enough to invest in anything to do with the government cuts no ice. But the pension drawdown assumes gilt investment.

We are furious.. I wish I had not taken my accountant's advice years ago and set up the pension scheme, all of it funded by money we actually earned ourselves by loads of freelance work, etc.

My advice now would be: invest in good dividend paying companies but do so privately. All the tax advantages you get via a pension fund are negated by the total control Big Brother then gets over YOUR money, not least the tens of thousands wasted on useless "pensions watchers" down the years.

And, despite promises to the contrary, this crappy government is still insisting on us buying annuities (a terrible investment in my opinion) at age 77.

So what was it all about, all those years of saving? Could it just be that HMG wants us to leave a big slab of pension money when we keel over, so it can be taxed to oblivion? Surely not.

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Dennis .

Nov 30, 2011 at 20:23

I am not sure that life expectancy is increasing, it's just that more of us are reaching old age which is different. Just look around the graveyards, many people 100's of years ago lived to their late 80s and 90s. These days a higher proportion actually get there.

Having said that I am a member of a large company pension scheme and every month they produce a list of who has died (and their ages). Few of them are getting past 75!

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Colin Gregg

Nov 30, 2011 at 21:22

Well I'd wager, Dennis ., that few people WILL be living past 75 in 25-50 years time if they're still going to be compulsorily working to age 70+

.......but then that's exactly what the government needs (wants?!) in order to reduce the public services' and State pensions bill.

That's REAL forward planning!

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S B

Dec 01, 2011 at 02:11

Philmo - if you want reasoned debate you probably shouldn't start it by proposing the state mandated theft of people assets. Communism is always (rightly) going to go down like a lead balloon on a financial website!

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stiff watt

Dec 01, 2011 at 08:07

State pensions ought to be of the 'funded' variety if no more children are to be born.

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Philmo

Dec 01, 2011 at 09:42

SB

History is littered with examples of Nationalisation - used to be the UK Labour Party's favourite party trick! Doesn't take a communist to do it, neither is financial management alien to left thinking people [not that I am one].

I considered that a solution for all approach might be good as currently we have mandatory NI [for those who work that is] but at best a patchynational pension payout which is inadequate and variable provision by individuals, with or without their employers' help. HMG wouldn't see it as "theft" any more than an insurance company, merely "management on behalf of".

There are articles on "the last great source of funding" to prop up our ailing [world] economy, some very recently published. You should do a search for them - frightening reading!

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Dennis .

Dec 01, 2011 at 10:06

Funny business though, the comment was made on TV last night that if public sector pensions became too expensive then more people would opt out and end up dependent on the state. So what's the difference?

Actually the same goes for private pensions which are paid out of company dividends from services provided to the public. Basically the whole pension issue is about what share of national wealth are you entitled to in retirement and you had better hope that there are some youngsters around to deliver!

Sounds a bit Ponzi like to me.....

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Mac Kotecha

Dec 01, 2011 at 10:35

State pensions liability will fall on our children and grandchildren (and not on politicians). The UK PLC balance sheet looks poor and cashflow/balance of payments very poor.

If there is no money about we could go the Greece way and have a 'haircut' on all benefits and pensions as a way to try and live within our means.

We all need to act grown up. When people say Government needs to do this there may be a large number of individuals who have ne appreciation of our true position.

If headmasters who had quite an increase a few years ago and also increased pensions INDEXED with SPOUSE pay and very generous TAXFREE CASH to be paid on the basis of their FINAL pay also join the unrest what do think our childen learn from the teachers etc?

Consider an example of a person (real life) who joined police service at 17 and has just retired at age 47 after thirty years at his full pension of 2/3rd of final pay with a tax free cash and spouse pension all indexed. He may live another 50 years with additional free medical services etc. The finances of our country cannot afford this. The burden will fall on our grandchildren.

The Trades Unions want this to happen!! (They fell that it is their job to do this.)

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Dennis .

Dec 01, 2011 at 10:45

Yesterday on the news I saw a child in a pushchair carrying a banner saying "save my Mum's pension".

It should have read "I am going to have to pay for this lot"

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Mac Kotecha

Dec 01, 2011 at 11:05

Very True Dennis

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Maverick

Dec 01, 2011 at 11:13

Alan Franklin - You're wrong - there is no necessity to buy an annuity at any age. That requirement went out in 2006, and anyone who tells you otherwise wants the commission on your unnecessary annuity.

Your "adviser" had bags of warning that the drawdown precentage was dropping this April. If he didn't advise you to do something about it well before April, you ought to sack him.

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Jonathan

Dec 01, 2011 at 11:27

stiff watt

By funded I take it you mean having a pension pot with money in it, that we give to banks to invest and let them take a cut of 1% a year? I'm sure there are many bankers who want civil service pension to run this way. Maybe we should also do that with the state pension. That would see bankers get really rich and let share prices rocket.

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Philmo

Dec 01, 2011 at 11:32

Absolutely spot on Mac

Am I seeing the beginnings of a groundswell of support for my initial proposition?

Don't get me wrong - I can see the risks of HMG manipulation and mismanagement as well as anyone, which is why I proposed proper, transparent and rigorous monitoring by an authoritative and knowledgable independent body.

I consider it essential that the solution is a funded one so that we are not mortgaging the future of our children - we should have the self discipline to pay our own way! It also needs to be defined contribution, but variable so as to maintain a reasonable chance of hitting a retirement target.

Going back to SB's issue re nationalisation of pensions - I recall the last time it happened in a big way was in the 1940's when the teachers' fully funded scheme was mugged lock/stock, by our socialist bretheren in exchange for promises re continued payout at the teachers' preferred level!

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Mac Kotecha

Dec 01, 2011 at 13:13

I agree with Philmo comment.

The benefits can be revised periodically depending upon a through evaluation of liabilities to ensure that liabilities equate funds held within such a scheme.

A transition to this ASAP would help one and all.

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Robert Court

Dec 01, 2011 at 14:37

alan thorburn

You made an excellent point.

'Just because people LIVE longer it doesn`t necessarily mean that they can WORK longer. It will perhaps depend on the physical demands of their jobs. eg. A worker in the building trade has a more physically demanding

job than a teacher or an office pen pusher! '

Many people have for decades found it harder and harder to get back into work or progress in their career if they have had a 'hiccup' over the age of 40 let alone over 60!

Even the civil service FORCED people to retire at 60 below a certain rank and then SOME had to wait five years in relative poverty before their civil service pension was boosted by the state old age pension (I myself quote the case of some 'never has been' administrative officer who never got promoted in 40 years of public service being entitled to housing benefit when forced to retire at the age of 60.

What happens when we have a mass of unemployable youngsters PLUS a growing band of unemployed 60+ year olds who do not yet have a pension?

The only answer is a vastly reduced unemployment benefit that needs to be at least 50% less than the state old age pension.

Many people over the age of 60 are willing and able to work part-time but unable to work full-time - maybe they should be given a greater incentive to work so that they don't also join the unemployed.

One method would be to introduce a minimal state old age pension at age 'x' but to give the individual a higher state starting pension the longer they defer taking their pension PLUS give considerable tax incentives for those working over the former retirement age of 65.

We need to BOTH save the government (aka tax payer money) and give people a genuine incentive to carry on working past the previous state pension age even if this is on a part-time basis.

Millions of former unemployed or retired age people working even part-time should help create more wealth and benefit all of society PROVIDED they are not 'make-believe jobs' created solely by the government to massage unemployment figures at an even greater economic cost.

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David Harvey

Dec 01, 2011 at 21:02

For reasons people have stated I wonder if retiring later is going to good for industry. With so many older people shed first one way or another and the false reality of the desirability of the elderly in the workplace, the genetic lottery which sees people ageing differently. Many of the people that we see as being well, are often covering years of operations or treatment. There is a sort of visual effect here at work where what you see is not what employers will get.

So I think that eventually when the spin that has been put on this has been seen we will need legislation to force companies to take on more older people. Companies are often pleased with their older employees but the impression that this would be common in all older people is an illusion because those that are working are well and choose it. What happens when those who are unwell, unsafe or unproductive or simply hate being there hit the job market?

I have seen ridiculous judgements made recently where people in awful physical states are being declared as fit for work. Even GPs are being taken aback by decisions. Yes they are off the disability but someone will now need to employ them. Added to this we are now telling millions of adults with learning difficulties that they are entitled to have a job, the list goes on.

I have to ask myself is this really what we need to do for our country to be more than the industrial has-been it is?

Is it any wonder youth unemployment is so high. We need scientists and engineers with young vibrant minds to help us produce new ideas and industries. Lets help those people they are our future.

We will on the one hand save pension money but on the other incumber industry.

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Martin Drew

Dec 01, 2011 at 23:42

I suspect on this board none of us will dispute David Harvey when he says "We need scientists and engineers with young vibrant minds"; sadly schools seem to encourage the young to pursue media studies which makes qualified for almost nothing in the real world.

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David Harvey

Dec 02, 2011 at 08:22

That's true Martin D. so, we can add those to the job queue full of the useless, the sick, the old, the unwilling the infirm the disabled and lets not forget the huge weight of ignorant poverty and all their relatives that we are importing from Eastern Europe at an astonishing rate as if we don't have enough.

In fact when we look at this, which is the clay from which we hope to build our future, the pension issue seems to go to the side lines.

In fact when I lived in the Middle East I had a saying "If you want the flies out of the kitchen put a pile of s*^t in the living room". I think that while we are at each others throats in the much fabricated public vs private row we have our eye off the ball of what is really happening to our country.

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Robert Court

Dec 02, 2011 at 08:24

David Harvey

You have really hit the nail on the head!

I 'retired' at the tender age of 50 and a half; and don't yet receive any sort of pension.

I'm lucky and hope to not only survive but prosper in my old age if I can live off my investment income and [with even more luck] kick inflation into touch.

Administrators can work as long as they are mentally fit and have enough eye and hand co=ordination to push their pens or rattle their keyboards or not too deaf to conduct a telephone conversation but i do agree that the more physical the job the less likely the AVERAGE person is going to be able to continue into old age.

There is a very good reason that Army personnel normally retire in the ranks after just 22 years from the age of 18 at 40........... they might be 'cannon fire' but they can't give their lives to Queen and country if they can't even raise their heads above the parapet of the trench they took a few weeks digging out spade by painful spade!

One reason I never had a trade; I could not envisage working on a building site in the cold and rain once suffering from Arthur Ritus let alone rigor mortis.

However, even oldies often like to feel useful and many work on a voluntary basis part-time........... maybe we'll end up with an Army of 65 to 75 year olds running taxis (oh my God - watch out!) etc.

Just had a brilliant idea; with their wealth of experience those who should have retired but shall now be too young to receive a pension should take over the government (both national and local)!

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Mac Kotecha

Dec 02, 2011 at 09:34

What all must understand is that the government has no mine that it takes money out of. There is no magic to the actual facts.

Investment Intelligence Seminar notes:

Round 3 2011 seminar notes (Invesco Perpetual)

From the notes:

The key elements of the UK public sector finances for the current financial year (2011/12) can be set out in five lines:3

1 Tax, national insurance and other revenue £589,000,000,000

2 Government spending £710,000,000,000

3 New debt £121,000,000,000

4 National debt £909,200,000,000

5 Planned spending cuts for current year £ 22,000,000,000

If we knock seven noughts off each of these items and pretend that we are referring to a modern equivalent of the Wilkins Micawber4 household, then the equivalent position is:

1 Income £58,900

2 Spending £71,000

3 New debt on the credit card £12,100

4 Amount outstanding on the credit card £90,920

5 Planned spending cuts £2,200

Clearly, in those circumstances debt will continue to rise.

UK public finances and a modern Micawber household

Ideally we would all like 2/3 (66.666%) of final income after completing a 40 year service with tax free cash equal to 4 times salary and the pension indexed but where is the money??

I do not think that many people actually appreciate this.

Sell the whole country to China to pay for this??

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David Harvey

Dec 02, 2011 at 10:01

How true Mac that there is no mine. But at the same time there is no mine for investors and the money from money people who have become a greater parasite that the dole mongers.

We need to MAKE STUFF and sell it. Go to industrial estates around the country and ask yourself how many people are actually producing goods. Invariably you will find just a few percent if that. All the rest are middle men, stores, leisure related, service companies etc.

Throwing our country into poverty as we are doing just removes millions of potential customers from the loop. If we take out some of the corporate loopholes and leave a few bob in the economy the corporations will get it back. No matter how poor we make ourself we will never compete with the cheap labour of China. We need new innovations and new science that have value. This will never be achieved with the workforce we are creating and importing.

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Robert Court

Dec 02, 2011 at 10:27

David Harvey

SOME services create wealth for a country - and not only banking.

Tourism is an export and we should encourage guided tours for foreigners to visit places where our impoverished public sector employees toil for the rest of us who live a life of futile indolent luxury.

Mac Kotecha

Thanks for putting some figures on the economy; I believe the public sector has been quoted at about six million; that's only one in ten out of a total population of 60 million but a huge 30% if the total workforce actually working is more like 20 million and then if that figure was right then 14 million would be paying for the six million and then that would mean every working person not in the public sector would be supporting almost four other people (or five if anything left over for themselves).

No wonder we're in so much debt; anybody over 12 should be forced to do at least a paper round or help work in the fields in the long summer holidays as was the original intention.

Some 'kids' these days don't even apply for a job until they are over 30 after spending a huge amount of their potential working lives engaged in higher education getting higher and higher degrees before joining the ranks of the overqualified unemployed.

Back to the public sector; even if we had a total employed workforce of 30 million (we have less than that) then we could afford (if 10% of total) a total public sector of 3 million and we have about double that.

We should pay public sector workers well, but let's have only what we can afford - at least 50% less of them who are the very best we can afford.

When there is the need for cuts the public sector would always prefer to cut back services rather than make anybody unemployed. The private sector cannot afford to cut back on the service it provides or it goes out of business so it has to become more efficient and that sadly means making people unemployed or at least putting many on reduced wages and 'short time'.

The private sector has to be cruel to be kind (i.e. cruel to survive). The public sector has to accept that they cannot be exempt from the basic laws of survival; even if the governments we have all elected are to blame for giving them their jobs in the first place.

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Mac Kotecha

Dec 02, 2011 at 10:40

I agree, David.

The public sector is wholly supportd by reducing private sector. Whilst there are a lot of things that we may like, we do have to look to see what we have in the pocket before spending. If spending is already committed, then unless we change the actual committments we could go the Greece way and have a masive haircut on everything.

(I am not a banker) Some bankers are greedy

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Mac Kotecha

Dec 02, 2011 at 10:41

ignore the part posting above

I agree, David.

The public sector is wholly supported by reducing private sector. Whilst there are a lot of things that we may like, we do have to look to see what we have in the pocket before spending. If spending is already committed, then unless we change the actual commitments we could go the Greece way and have a massive haircut on everything.

(I am not a banker) Some bankers are greedy and so are some of the top executives of the PLCs. However there are some seriously tenanted people we have and if these are used to increase wealth it would be good. Perhaps cap the maximum that they can take as the number of time of the average pay.

If these guys, some that work just short of 18 hours a day 7 days a week would just pack their bags and leave.

A very small number of bankers get bankers’ rates as per press. A lot of them provide the normal banking and not investment management services. However the press picks up on the top individuals.

How much does Bob Crow get? 5 time the average and 66% of indexed pension and tax free cash sum of 4 time final salary? Do his members have a problem with that? No because of what they think he can get from them.

Just because the cost of good talent is high it does not follow that the expense is not justified. Likewise one will also find situation where there are people who are taking a lot more than can be justified morally and commercially. And that should be checked.

The biggest problem that I think we have with the public sector is lack of a long term policy and good secure management that can implement this. We have changes in direction when the government changes and then also sometimes several times within the parliament term. I am sure that this would be quite frustrating for the public sector management. Then I suspect the culture of ‘take what you can whilst you can’ develops that the tax payers have to pick up the pieces with. The medical computer project comes to mind. No one in the private sector would commit such an expense without a guaranteed satisfactory outcome.

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Martin Drew

Dec 02, 2011 at 10:50

Robert C is right about some service industries. In the bleak years of the 1970s when the dollar pound exchange almost reached parity tourism created hundreds of thousands of jobs, partly fuelled by the tourism development act of 1969 which gave grants for building hotels, and so some of the initial work was in the building trade, followed by work for all the factories that supply baths, carpets, beds matresses etc. and then finally the staff who man the hotels, drive the coaches, guide etc. In 1965 it was estimated only 20 theatres would be open in London by the end of the '70s, the reason they were wrong was the tourists.

As for public sector staffing the cuts need to be made in the big offices around Whitehall, but the people who man those offices ensure that the cuts are made at the front line. In the private sector the invention of the mobile telephone has allowed for the removal of a vast swathe of middle management because the boss can always be contacted 24/7, 365 days a year. Only in Whitehall has this opportunity to streamline and cut costs been ignored.

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Philmo

Dec 02, 2011 at 11:19

Robert

Your penultimate para hits a very large nail on the head!

There is a presumption [unfounded] in all you hear from the public sector that they are working at max efficiency, with no fat to be pruned when it is clear to all the privateers looking in that that is absolutely not the case! Rarely do you hear that the first thing they look at are the accounts and identify all the non-productive overheads!

And minutes of statutory body meetings - just a load of words! Sections which purport to report progress, not a mention of goal deinition with timescales or percentage achieved progress compared with planned progress and actions needed to bring progress back on track.

You give valid feedback to a public organisation, it immediately puts them on the back foot and causes a torrent of excuses, when it should make them think, "we need to consider that and put it on the agenda". Most of them haven't heard of the operational feedback loop or the QA motto "Do it right - Do it once"! or consider that checking inputs and outputs from a process are worthwhile labour saving procedures!

You visit a public building and half the indigenous population are in the corridors either chatting or carrying a file to their next meeting.

And it's just part of the culture to avoid being seen to be making an effort in any direction, as it might set a prescedent!

Rant over & apologies to those who really do try.

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Jonathan

Dec 02, 2011 at 11:28

Mac Kotecha

re: "What all must understand is that the government has no mine that it takes money out of"

Are you forgetting it has a limitless printing press?

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Mac Kotecha

Dec 02, 2011 at 12:08

Jonathan

That is now part of the problem.

More bits of paper with the same underlying assets mean the value of each paper is getting less as more of them are in circulation!

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Jonathan

Dec 02, 2011 at 13:33

Mac Kotecha

Yes, what better way to contraction an economy than devaluing the pound, high inflation and sub-inflation pay rises?

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Robert Court

Dec 02, 2011 at 17:21

Mac Kotecha

I'd like a 'balanced budget' where it was decided that 'x' percent of total tax revenues were spent on each item of expenditure.

The if 'x' percent was paid on state pensions (based on previous year's revenues of course) then the better the economy did the greater pensioners as a whole would benefit and if there was a bad year they'd suffer a reduction unless the government robbed Peter to pay Paul and increased what x' was BUT this would have to mean reducing expentiture elsewhere and would be clear and transparent.

As the numbers of pensioners increased with the demographics they would either have to make do with less individually of the pot even if the pot had grown unless this 'x' percentage of the cake kept increasing.

There would come a point where 'x' just grew too big unless gangs of pensioners went round killing each other off to increase their share of 'x'.

I like the common sense idea that when the country is doing well that pensioners benefit with the rest of us and when we are going through hard times that they also make a sacrifice.

Regarding redistribution of wealth I'd like to say that if I had a net income of say greater than £104,000 per annum (£2,000 per week) I should refuse to take a state pension however much I'd contributed to it.

To a truly rich person the state old age pension must be 'peanuts' and if people are able to provide themselves with an excellent standard of living by their own hard work in retirement they don't need a state pension and taking away the state pension from the really rich would surely help those who are struggling.

The problem with means testing any state benefits (including pensions) is that somebody earning £100,000 is going to make damn sure they don't exceed the £104,000 threshold or whatever it might be out of greed.

I already know of people who deliberately refuse to save anything for their old age as they consider it would be taken away from any future entitlement to other benefits such as housing benefit or income support etc.

Governments are not always totally foolish or evil - they just fail to see that being generous to some of the most disadvantaged in society tends to make those only slightly worse off lose their motivation to stand properly on their own two feet.

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Robert Court

Dec 02, 2011 at 17:25

'The road to Hell (private/state/public service pensions fiasco) is/was paved with good intentions'

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Mac Kotecha

Dec 02, 2011 at 18:05

Robert Court

You make very sensible comments.

I wrote to my MP last week as follows:

-----------------------------------------------------------------------------------

UK Finance Heros

I suggest that a way be found perhaps linking this to the voting papers such that people that are comfortably off tick a box not to receive state handouts like:

Winter fuel Allowances

State Pension

Family Allowances

Prescription charges

Free Travel passes

Currently there is no way in which such matters can be implemented.

Further a list be published of UK Finance Heros on internet (to saver costs)

------------------------------

Ken Clarke recently responded to a reporter question stating that he regards winter fuel allowance as a tax repayment. The total cost for winter fuel is very similar to the amunt the government is expected to raise from University fees. (I do believe that if the fee was paid people would take more sensible decisions for further education rather going for fun at tax payers expense.)

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PensionsManager

Dec 14, 2011 at 07:20

The age 80 age addition is a few pence a week. Make that £80 a week extra and let private schemes provide a temporary annuity element to age 80 to reduce cost of saving for a pension for that element. Folks deserve a decent guaranteed income if and when they reach age 80.

MPs should have shown leadership and reduced their pension deal first. Cameron spoke at a FT conference in 2009 and told the audience one of his first priorities was to close the Parliamentary scheme to new MPs. He quietly forgot that 'promise'.

I have some sympathy for the idea of a Sovereign Wealth Fund and utilisation of the NI system to collect contributions for central investment by a central wealth fund for the UK. Norway has done something similar with its oil revenues, but they have only 6m people. Perhaps we all need to join a Norwegian dating agency.

www.pensionsmanager.blogspot.com

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David Harvey

Dec 14, 2011 at 14:35

The number of promises he has forgotten is growing fast. Most of them were coercive to make the other promises that he 'has' kept seem acceptable. Carrots to lead us over the cliff.

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