Pension money

A recent article on pensions led me to recall the recent blog welcoming everyone to the Money Factory. This pension article and the OECD graph below suggests that the UK does not do well on pensions.

Fig. 1 Pensions by Country OECD

 

I suspect that things like the NHS and the winter fuel payment, or council tax and pension credit will blur the value of pensions in the UK. Even so, this is as percentage of previous pay, so even when other countries are likely to have some similarly ‘off the grid’ systems, it seems fairly safe to assume that UK state pensions are far from the best.

But in fact this is not going to be my point. The figures demonstrate, surely, the affordability of a Universal Basic Income  (I prefer Universal Basic Capital) for at the very least the elderly. How much higher are taxes alleged to be as a result? Is there campaigning in – just to choose the best paying EU examples, Portugal, Italy, Croatia, Austria, Hungary to brandish them as unaffordable?

According to the OECD, men on average are still in the workforce at age 65 in Denmark, Iceland, Ireland, Portugal and Switzerland, but have left work by their 60th birthday in Austria, Belgium, France, Hungary, Luxembourg and the Slovak Republic. (Women, in general, retire around one to two years earlier than men.)

The variation is remarkable. Are we really suggesting that Austria is so unbelievably prosperous that its citizens can retire at 60 and still have one of the best state pensions in Europe – or Portugal, hardly, these days, renowned for its wealth, have an even better pension, if only at age 65?

So what is a state pension? I suggest it is a form of Universal Basic Income (or Universal Basic Capital). Most EU & OECD countries have an (allegedly) insurance based system  – including the UK. Whose system is not insurance based at all! When it was created we were still on the (Bretton Woods) ‘slightly’ gold standard. National Insurance, although first introduced by the National Insurance Act 1911 was expanded by the Labour government in 1948 as a method for providing ‘costless’ care that they wanted to provide. But we now know it is in fact a tax.

In addition I would suggest that the way pensions are organised in the UK is rather insidious to the way we think about money.

We are encouraged to think all pensions are a finite pot. Philip Green of Arcadia certainly thinks they are so why should we think any differently? There  are now virtually no ‘defined benefit’ pensions – only ‘defined contributions’ – which is really a glorified savings scheme. Many of the more notable company schemes (BHS? Carillion?) are possibly worse than we would get by saving in the building society over the period. It used to be thought that those pension investment managers were very clever but we have discovered that, in fact, there is certainly no alchemy and probably no skill.

Additionally these sorts of private pension funds in the EU really operate only in the UK, Holland and Ireland (apologies for the link  – the end of the article has the proper information). The rest operate on the insurance model which is usually state operated but sometimes with the assistance of private providers.

Actually the private pension system would surely be better suited to insurance than a managed fund – an idea that one, Michel Barnier, is alleged to favour. And by way of (inevitable) contrast we now have the UK government actuary department forecasting that “we need to work until 70 in the 2050s”.

All this is is pretty insidious. Why should  an investment that is predicated on the idiocy of second hand shareholdings in joint stock companies going up or down be the basis of our pensions?

Who cares? Well of course you should if your pension depends on it. Thus the scrolling FTSE 100 prices along the bottom of the television screen are meant to be relevant to us all. They can’t be, simply because the overwhelming majority of us have absolutely no control over our pension funds….

Government debt should be our savings and we can – democratically – alter the interest rate to give us the pension we want. So government debt will turn out to be people’s savings. What a revelation!

Yet Italy, the UK and New Zealand have already introduced auto-enrolment schemes. However, the OECD report finds that results are mixed, with a “major expansion of coverage of private pensions in countries like New Zealand, [but] having only a small effect in others like Italy”.

Pensions have, I fear, been captured by the money is limited brigade. And auto-enrollment is also auto-enrollment into the idea that the private sector creates money.

Regrettably, we’ve been duped again!

 

Comments

  1. Charles Adams -

    Peter, I have been thinking a bit about pensions recently, and arrived at a similar place.

    If you think about a fair pensions system you end up with a universal basic income scenario – a generous state pension paid to all regardless of contributions.

    Note that NICs are more than just a tax in the sense that the state pension is linked to them – this is very unfair on people that make valuable contributions to society in other ways, e.g. voluntary work, and bringing up children. The current form of defined benefits schemes are unfair as they mean that someone is topping up the pension of someone else. The only way to make this fair is for everyone to get the same benefit, i.e., auto enrolment in a state defined benefit scheme or UBI. If people want to save more on top of that then everyone is free to do that, but no need to for tax relief and subsidies to private sector schemes.

    As you correctly point out the private ‘pensions industry’ is nothing more than another form of rent extraction from the productive parts of the economy – as pointed out in Michael Hudson’s Killing the host.

  2. Peter May -

    A good point about the state pension being linked to National Insurance, which I know, but missed out! As far as I’m aware most if not all? EU countries have a similar system (goodness knows what the US does) which does have the crazy disadvantages you point out and means that pensions are a bit less of a UBI, I suppose. Mind you at least you do get a NI credit if you’re unemployed. I’m unsure when if you’re on a zero hours contract but end up with say 3 months in the year when you don’t work, whether this affects your NICs. I suspect it does, which is another major unfairness.

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