Wednesday, November 5, 2014

The United Kingdom of Pension Poverty?

Tom Clark of the Guardian reports, Government to include public sector pensions in welfare spending figures:
The occupational pensions of army generals and top Whitehall mandarins will be classified as welfare spending in the tax transparency statements that George Osborne has promised every taxpayer.

Her Majesty’s Revenue and Customs is writing to millions of tax-paying households with detailed figures on how the government spends their income tax and National Insurance contributions. Welfare is recorded collectively as the single largest expenditure, consuming nearly one pound in every four.

This presentation has been criticised as a politically motivated departure from Treasury officials’ original plan to break down social security into the components paid to different parts of the population, such as elderly, disabled and unemployed people.

By revealing that payments specifically earmarked for the unemployed, for example, represented only 3% of the total, this approach may have set back Osborne’s case for a fresh £12bn in benefit cuts.

Now experts are drawing attention not only to the lack of differentiation in the welfare chunk of spending but also to the inclusion of substantial elements of spending that would not normally be considered welfare, notably personal social services and public sector pensions.

The Treasury said: “The headings in our tax summaries are based on internationally recognised (UN) definitions.” But in a briefing note published on Tuesday, the Institute for Fiscal Studies detailed how the welfare total included £28.5bn of “personal social services”.

“This is a number that in many analyses one would want to report separately from other welfare spending,” the IFS said. “Unlike other elements of ‘social protection’ it is not a cash transfer payment and in many ways has more in common with spending on health than spending on social security benefits.

“Another £20bn of the spending counted under welfare is pensions to older people other than state pensions. That includes spending on public sector pensions – to retired nurses, soldiers and so on. This is not spending that would normally be classed as welfare.”

Declan Gaffney, a social security researcher, said the inclusion of public sector pensions was bizarre. “The Treasury needs to clarify exactly how it arrived at these figures, and publish the workings – spelling out exactly whose pensions it included and why.” After a day of confusion, in which the Cabinet Office originally led the Daily Mirror to believe that MPs’ and ministers’ pensions would be classed as welfare, the Treasury belatedly clarified that, because the parliamentary pension scheme is funded, it would not be included with the unfunded scheme which covers their civil servants.

Gaffney has used IFS tables to calculate a more conventional figure for total welfare less state pension expenditure, and concludes that the government’s choice of definition inflates the published welfare spending total by around 40%.

A spokesman for PCS, the civil service union, said: “Tens of thousands of civil servants work hard to deliver social security support and they know how important and necessary it is. For their pensions to be hijacked as part of the government’s latest political attack on our welfare state is absolutely disgusting and it exposes just how far ministers will go to poison the well of public opinion.”
Leave it up to those whacky British Conservatives to use any gimmick in the book to grossly inflate welfare spending in order to attack the welfare state.

Prime Minister David Cameron and George Osborne, the Chancellor of the Exchequer, have really outdone themselves by including public sector pensions in welfare spending figures. Perhaps they should focus less on pandering to billionaires and more on the UK's retirement crisis.

Sarah O'Grady of the Express reports, Pension crisis for millions: 1 in 5 workers to MISS OUT on genorous new state pension:
The £155-a-week flat-rate payments will be introduced in April 2016, but almost one in five people retiring after that date will not qualify for the full amount.

Women will be particularly badly hit, according to pension giant Prudential.

Twenty-one per cent of women – mostly ­ mothers who took a career break to care for their children – will not have the full 35 years of national insurance contributions necessary. For men, the ­proportion is 14 per cent.

Now financial experts are warning that people must top up their contributions to ensure they do not miss out on their full entitlement.

Malcolm McLean, of pension specialists Barnett Waddingham, said: “I would urge everybody ­reaching their state pension age in the first few years after April 6, 2016 to check their national insurance record with the Department for Work and Pensions to see whether they will have paid in the full 35 years.

"If the answer is no, then give serious consideration to ­buying in the necessary extra years through voluntary ­contributions.”

To qualify for the full rate of the new “single-tier” state pension, 35 NI qualifying years will be needed instead of the current 30 years.

Those with fewer years – provided they have a minimum of 10 – will get a proportion of the full rate.

But it is possible to make good any gaps by making ­voluntary payments known as Class 3 contributions.

For anyone with the expectation of a normal lifespan these are usually good value for money, repaying the cost of purchasing one year’s worth within the space of a little more than three years.

Alan Higham, retirement director at investment firm Fidelity, said: “The state ­pension is extremely complicated and people should not make assumptions about their entitlement.”

Talking about the first few years of the scheme he added: “Over 60 per cent of people retiring between 2016 and 2020 will not receive the full new single pension.

“Many people tempted to spend their private pension in April 2015 could be in for a shock when the state pays them less than expected a year later,” he added.

“Always obtain a forecast from the Department for Work and Pensions before making any decisions.” ­Prudential’s poll found that more than two-thirds (67 per cent) of adults expect to have worked for at least 35 years by the time they retire.

Women believe they are less likely than men to reach this milestone, with 61 per cent believing they will reach 35 years, compared with 74 per cent of men.

Nearly half (49 per cent) of women who think they will miss out believe they will do so as a result of taking career breaks to raise children, although 20 per cent say they will not meet the target due to long-term illness.

Tim Fassam, pensions ­policy expert at Prudential, warned people not to rely solely on the state pension. He suggested “saving as much as possible as early as possible in your working life, and seeking professional financial advice in the run-up to retirement”.

This “will help to ensure that you are best placed to make the most of your savings when you’re ready to stop working”.

Additional NI years can be credited to those who receive jobseeker’s allowance or employment and support allowance.

Parents claiming child ­benefit for children under 12, those who are unable to work through illness and carers can also claim added years.

But the survey found that only 14 per cent of adults who believe they will not make 35 years in a job will make ­voluntary contributions.

There was also confusion surrounding the reforms.

Almost one in three of those aged 55-plus were not aware of the new arrangements with the figure rising to half among the total adult population.

Many also did not know how much the new pension payment would be.

Pensions Minister Steve Webb said: “Over time, the new state pension will give people greater clarity over their retirement income, ­significantly reduce means-testing and create a fairer ­society.”
The new state pension is better than the old system but the reality is the £155-a-week flat-rate payments are a pittance, especially if you live in London or any other major city in the UK.

Last week I discussed the United States of pension poverty, explaining why the current system is a total disaster. Allison Schrager of Bloomberg just reported on how 401(k) plans are fueling inequality in America.

Things are better in the UK but not much better. When I read the nonsense the Conservatives are publishing to justify their myopic attack on the welfare state, I get discouraged and realize politicians all over just don't get it.

Below, Jeff Randall discusses the UK Pensions Crisis and compulsory personal contributions with a special report and guest appearance from an Aviva Pensions Expert.

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