Tuesday, December 18, 2007

Pensions Black Holes


How a pensions black hole works

Yesterday our battered beleaguered rulers bunged £3.9bn more taxpayers' money into yet another pensions black hole.

Now, all of us sympathise with the 130,000 people who lost all or part of their pensions when their companies went bust up to 2003. And all of us can see that they were grossly misled by that stream of official assurances that their final salary pensions were safe (see here for Mail's campaign).

But as taxpayers, we need to be quite clear about one thing: once again we're being forced to pay for clearing up a pensions mess largely created by our rulers.

If the government had not issued all those incorrect and misleading assurances that final salary pensions were safe, these pension members and their trade unions would have had no basis for their legal case.

More fundamentally, if successive governments had squared up to the truth about final salary schemes, they'd have established an insurance scheme long before 2004.

The whole pensions universe abounds with hugely expensive black holes. And as we've blogged many times, successive governments are in denial about the looming crisis (eg see this blog). Despite a string of weighty reports (eg the Turner Commission- see this blog), they are still not gripping the real issues. Which are:
  • Pension age- increasing life expectancy means the State Pension Age (SPA) needs to be increased sharply; the current plan is to raise it to 68 by 2044: we reckon we need quicker action and that SPA needs to go to 70, which would save us about £15bn pa- c 1% of GDP (eg see this blog);
  • Public Sector pensions- the scandal of largely unfunded public sector pensions continues (eg see this blog); in the face of pressure from their union paymasters, Labour backed off increasing the retirement age from 60 (or even below in some cases), and the total cost to taxpayers is currently put at about £1 trillion- twice the officially declared National Debt.

As we've said many times, the combination of spineless politicos and our chequebook is not a happy one. And unless you want to spend your old age living on Value Buy pizza, we suggest you move your savings offshore and don't plan on retirement until 75. At which point you should emigrate.

PS The splendidly opulent pension arrangements enjoyed by the boys and girls in blue are once again highlighted by the case of Ian Johnston , who leads the British Transport Police (BTP) and is a national police spokesman on organised crime. It turns out he is the highest-paid officer in the country with an estimated pay-and-pension package of £260,000 a year. The reason? He retired from the Met at age 55 on his full £70 grand pension, and then promptly got himself a new job with the BTP on £195 grand pa. Plus of course, the usual generous police expenses (£6,964.40 last year). If only everyone had such a cushy pension deal.

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