Tuesday, November 29, 2011

By George, How Bad Is It?

The Guardian reports, George Osborne confirms state pension age will rise to 67:

The government will raise the state pension age to 67 by April 2028 in a move it said would save the UK almost £60bn.

The change, which was announced by the chancellor George Osborne in his autumn statement, and had been widely anticipated, will be phased in over two years from April 2026. It will affect 8.1 million people in their 40s who would otherwise have expected to retire at 66.

Osborne said the move was in response to rising life expectancy and described it as "a measure to control spending [which] is not for today or for next year or even for the next decade".

He added: "Our generation has been warned that the costs of providing decent state pensions are going to become more and more unaffordable unless we take further action.

"Let's not leave it to our children to take emergency action to rescue the public finances; let's think ahead and take responsible, sensible steps now."

The chancellor said the change would not affect anyone already within 14 years of reaching state pension age and would save £59bn between the 2026/27 financial year and 2035/36.

"We are showing a world sceptical that democratic western governments can take tough decisions that Britain will pay its way in the world," he added.

The government has already brought forward plans to increase the state pension age to 66. This will happen by 2020 instead of the 2026 deadline planned by the Labour government.

Dr Ros Altmann, director-general of older peoples' charity Saga, said rising life expectancy meant it was inevitable that the state pension age would increase.

"Pension ages everywhere are rising. Today's announcement that Britain's state pension age will increase to age 67 starting from 2026 is not far out of line with other nations. Around that time the US, the Netherlands, Germany, Denmark and Spain will all be increasing pension ages to 67, and Ireland's pension age will be 68," she said.

"It also does give people around 15 years' notice which is fair – however, it is really quite scandalous that the government refused to use some of the money saved to delay the original rise to age 66 that has just been passed into law."

The London Mail reports, Millions will retire later as Government speeds up rise in state pension age, stating that the rise in pension age is set to hit women especially hard as they are already delaying retirement as their pension age moves in line with that of men, adding:

However, this is unlikely to be the end of rapid rises in the retirement age, as increasing life expectancy makes the current system unsustainable.

The Government has promised that the state pension age will in future be linked to life expectancy - which means that current A-level students might not retire until they are 77, according to some estimates.

Pensions are fast becoming a thorn in the side of the Coalition Government, with tomorrow's public-sector strike set to force the spotlight back on to the cuts in public sector pensions, which ministers say are in desperate need of reform.
Pensions are fast becoming the thorn in the side of all governments. In response to these new measures, defiant unions vow fresh strike chaos as up to two million people across the UK are expected to protest plans to make them pay more and work longer for smaller pensions.

But not all public sector workers support the national strike. The BBC reports that some teachers have dilemmas over pension strikes:

Secondary school head teacher Siobhan Lowe has been lying at awake at night agonising about whether to join the public sector pensions strike.

She agrees with the concerns her union - the National Association of Head Teachers - has about changes to teachers' pensions, fearing these will see teachers having to work longer, pay more and get less from their pensions.

But, as a head teacher, she feels she has a moral duty not to strike.

"I have this moral dichotomy about being a head teacher and closing my school. I don't want to deprive the pupils of their education - it's a real dilemma," she says.

After some personal agonising, Mrs Lowe has decided to close the school to pupils for the day, while she works along with any other non-striking staff.

The Department for Education estimates at least 90% of schools in England will be closed on Wednesday because of industrial action and schools in Wales, Scotland and Northern Ireland are also likely to see disruption.

Education Secretary Michael Gove is urging striking teachers and heads to think again, saying there is a good offer on the table following negotiations.

But Mrs Lowe, head teacher of the highly successful Tolworth Girls' School in Surbiton, south-west London, is worried about the impact of pension changes on her staff, about 70% of whom are planning to strike on Wednesday.

"They don't earn that much. The average salary for a teacher is about £30,000 plus and if you are living in London that is only going to get you a mortgage of about £120,000 and rents in this area are high."

Mrs Lowe says: "I know the perception from the media is that we have these so-called gold-plated pensions and long summer holidays.

"But we work hard. We do Saturday school here, we do after-school here and the teachers do not get anything extra for their time.

"If you're a teacher you have to be innovative and inspiring from your first class in the morning to your last class in the afternoon.

"That's 600 pupils that you are inspiring on a daily basis. It's exhausting," she says.

Experienced teacher Richard Inch, who is planning to strike on Wednesday, agrees that life as a teacher is all consuming.

"It's not just a job, it's a way of life," she says.

"I often wake up at 5.30 in the morning and start thinking about work," he explains.

'On quicksand'

The head of resistant materials at the school worked as a civil engineer and a computer programmer, before retraining as a teacher 16 years ago.

"I had a company car, a good wage and a bonus every year. I took a pay cut to become a teacher," he says.

Now the proposed changes to his pension make him feel like he is "on quicksand", he says.

The scheme was reassessed and renegotiated in 2007 and found to be sustainable, he adds.

For head of science and technology at the school Jim Green, a decent pension was part of the trade-off for his years of dedicated service.

He says: "Part of what I bought into is that my salary isn't ever going to be fantastic but, at the end of the day, I was looking forward to a good pension."

He describes himself as a reluctant striker but is angry at the way that the government has portrayed teachers.

"The government is suggesting we are being greedy but it is not actually true because the pension scheme is sustainable."

Teaching at 68

However, maths teacher David Pelham who worked for 25 years in industry before becoming a teacher says he thinks teachers' pensions are still good - even after the planned changes.

"I think the teachers' pension scheme is still a good deal compared to the private sector."

He is not planning to strike on Wednesday but he is opposed to the government plans to make teachers work until they are 68.

Mr Green agrees: "My wife teaches in a special school and she has to get down on her knees a lot. She thinks the idea that she should do this until the age of 68 is ludicrous."

Fellow maths teacher Mark Barrett, who is 31 and used to work in finance, is also opposed to working until he is 68. He says he has always viewed himself as someone who would work until a good age.

"But," he says, "having been a teacher for a year now I know how stressful it is and I don't think I could work as a teacher until I was 68. I just wouldn't have the energy required."

Mr Barrett, who is also planning to strike, says: "We all know why the country's finances are in such a bad state and it's not because of teachers."

Gina Healy, who represents the school's support staff for the union, Unison, says staff feel like they are being taxed by the back door.

She adds: "We work for a school we don't want to disrupt the students' lives but we feel that the government has really given us no choice."

Mr Gove says there is no "hidden pot of gold" for teachers' pensions.

He has also criticised union "hard-liners" over the strike, saying they were "itching for a fight".

There is no hidden pot of gold for teachers but the government is only presenting one side of the story. While it's true that longer life spans require an increase in the retirement age, the truth is that private and public pensions have not been managed properly in the UK and elsewhere.

This last point was underscored by Alexander Baron in his op-ed comment in Digital Journal, Who is to blame for the coming national strike in the U.K?:
It is estimated that up to 2 million public sector workers will be walking out tomorrow in the U.K. The unions blame the government; the government blames union militants. But who is really to blame?

The latest polls indicate that broadly, the public is sympathetic to this strike, which the public sector unions have mounted as a protest against Government plans to cut their pensions and make them work longer before qualifying for same. The Government is of course opposed to this action, while even the Opposition is lukewarm. Yesterday, Michael Gove, Secretary of State for Education, mounted a fierce attack on the militants he claims are responsible for this action, but this is not a case of militants leading and the sheeple following.

It is also fair to say that most rank and file union members don't want to strike, lose pay and cause disruption to the public anymore than does anyone else, but they feel they have been backed into a corner. So is this the fault of the Government, or is it the fault of (greedy) union bosses? The answer is that this is the wrong question; the question we should all be asking is why have pensions suddenly become so expensive?

The simple answer is that they are being plundered. If they were administered properly, contributions would be a lot less. This is not a new story; the reader is invited to cast his mind back to a BBC Panorama programme that was screened last year. The programme is no longer available on the BBC's website, but some public spirited person has uploaded this and this to YouTube. Check this out, too.

The point we should make is that it doesn't matter whether we are talking about private pension funds or state run funds, it is the system that is wrong and needs changing. What do the people who “manage” these funds actually do? What constitutes management? The simple answer is that they move funds from A to B, from B to C and from C back to A again, that is, they play the stock market. They also play other markets, in particular the market in government bonds. To play in this context means to gamble, literally that. What else would you call buying at price A hoping to sell for price A+b or selling for price A hoping shortly to buy back the same stock at price A-b?

The fund managers, the people you entrust with your pension, are paid whether or not they make a profit, or generate any growth for your retirement nest egg. While it is true that most of these funds do grow over the long term, this is more by accident than by design, because the stockmarket grows over the long term, and the longer a fund invests, the greater the chance of a decent return.

We said earlier that neither the Government nor the unions are to blame; that is not strictly true. The Government could rectify this scandalous state of affairs by removing the power from these fund managers, certainly as far as public sector pensions are concerned. It has gone some way towards that with its NEST scheme, but it would be far better if public sector employees were to pay into a fund whose custodians didn't play the stock market but simply invested their money on their behalf in equities, government bonds and anything else the Government considered suitable. The money could simply be held in trust and paid out to people as they retired. That way there would be only a tiny administration charge and no management funds: no bonuses, no advertising or office expenses, no fees for analysts or economists, nothing.

The resulting savings would probably mean the contributions of individual workers could be considerably reduced. Why doesn't the British Government or any other government do this? Because there are too many parasites battening on the system, and too many people with their snouts in the trough. Including politicians of all shades.
There are indeed "too many parasites battening the system," including corrupt politicians who shamelessly abuse their power which is why I continue blogging on pensions and financial markets. There is no simple solution to the mounting pension woes that industrialized nations face. Everyone will have to tighten their belt to make pensions sustainable. Nonetheless, I believe in professionally managed defined-benefit plans for everyone in the public and private sector, but to do this properly, you need to detonate a nuclear bomb across the current pension and financial systems, get rid of the parasites and get the governance right by properly aligning interests between fund managers and their stakeholders.

Finally, as I watch George going for broke, blaming Europe's 'debt storm' for all of Britain's economic woes, I wasn't surprised to see him pandering to the financial oligarchs by increasing the bank levy by 0.088% in 2012 -- yes, a whopping 0.088% next year! Watch the clip below. The message is clear, austerity for the hard working peasant population while the banksters take it all. No wonder the UK and other nations are heading down a dangerous path, one that will lead to social unrest and end up costing us all more than we can possibly imagine.

No comments:

Post a Comment