Readers letters
Ben Hargreaves asks what the future holds for pensions (May 2013).
I addressed some issues in a PE letter April 2008. Mass pensions schemes commenced only in the last 100 years. They have to be stable enough for a person to join at 18 and die at 110 years old, and this has to be repeatable. And then they must survive political interference, economic changes and increased life expectancy – failures were to be expected.
I previously commented on a government adviser stating that with macro management of economies, recession can’t happen - from the mouths of fools? Today’s concerns are not just about the viability of remaining company final salary schemes but also about the inequality, injustice and the economic impact of the UK pension system. No final salary company scheme can be considered safe. Would companies forming such schemes have done so knowing that liabilities could bankrupt the company or hinder its sale?
In some countries the state that bears the risk. Perhaps the EU should consider the unequal advantage this gives to some EU companies. Engineers with money purchase annuity schemes face big choices – when to take your pension, lump sum to be taken, cover for a spouse, degree of inflation protection and shopping around for the best provider.
These decisions can easily halve your pension and are decisions those in the public sector and the few remaining company final salary schemes do not face. The inequality and injustice are apparent and it raises questions.
Should the wealth producing private sector be funding benefits in the public sector it cannot afford for its own employees – the tail wagging the dog? Should taxpayers be funding public sector pensions which can exceed £100,000? Should pensions from final salary schemes be capped to say average national earnings with individuals funding any excess they require? Should existing high public sector pensions be tackled? Should inflation indexing be cut, should actual pensions be cut e.g. either directly or via targeted taxation? The IMF and others seek to impose such measures when Greece and others get into trouble so should we apply them to avoid the UK getting into the same position?
Part of the UK problem is the increase in numbers and salaries in state funded sectors. The answer to this and to the demographic issue is not, as some advocate, more immigration! Systems that forever rely on evermore people are Ponzzi systems. To benefit pensions, immigrants would need long term private sector jobs that do not displace job opportunities for the UK unemployed. They must then have salaries paying taxes which can fund the infrastructure and other costs associated with a larger population and only then start helping to fund state and public sector pensions.
Our UK record is far removed from these requirements.
John Allison, Maidenhead, Berks
Next letter: Lights going out frenzy