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Penury that unites old and young

Robert Peston | 09:54 UK time, Tuesday, 31 August 2010

I wish I could say I was overjoyed to be back in the supposedly real world, after a few days being revitalised by the benign winds and periodic sunshine of the Welsh coast.

Stack of pound coinsBut everywhere I look this morning there are gloomy stories about pensions (see the front pages of the Daily Mail and Telegraph, for starters) - and, of course, there is a direct relationship between the perceived salience of pension issues and age (which is why they oppress me and my contemporaries, and why younger people can't be bothered to save for a pension at all).

But here's the good news: the devastation of the savings of those like myself who have put money into pension pots for 20 or 30 years can be seen as healthy "natural justice".

Readers of this blog will be well aware - if they weren't already - that the distributional impact of the economic boom and bust of the past decade has been uneven and (in the view of many) deeply unfair: younger people have suffered the most in respect of rising unemployment, and even those lucky enough to have a job still can't afford to buy a home, because house prices remain high relative to earnings (and 100% mortgage-finance is no more).

But at least there's one less reason for impoverished youth to take to the streets to overthrow the pampered baby-boom generation, which arguably created the economic mess we're in.

Unless you happen to be the chief executive of a FTSE 100 company (most of whom have succeeded in retaining the most lavish, platinum-plated pension arrangements), or a senior public servant (with their gold-plated pension schemes), the pensions outlook for those aged 45 and over no longer looks quite as spectacularly good as it did.

It's mostly to do with the slashing of interest rates and the unprecedented easing of monetary conditions, engineered by the Bank of England (and other central banks) to prevent the Great Recession turning into a depression.

The point of near-zero Bank Rate and the creation of £200bn of new money was to ease the pain of those who had borrowed too much and prevent the credit tap from being turned off completely: but, as many of you are painfully aware, in the process the thrifty have been punished, whether they had their money in a savings account (whose interest rates have fallen to derisory levels) or a pension pot.

This has had a devastating effect on the sustainability of final salary savings schemes and on the returns for those putting cash into defined contribution schemes.

Low interest rates and thus the low returns available from high quality government and corporate bonds means that the income available from annuities - which savers in personal pensions have to buy when they want their pensions - has dropped by more than 6% over the past year and 45% over the past decade (according to Moneyfacts).

To translate, if you retire today with a pension pot identical to that accumulated by your older brother when he retired 10 years ago, your pension will be around half what he receives.

And the same phenomenon of plummeting bond yields - and reductions in the so-called "discount" rate - has the effect of massively enlarging the net liabilities of final salary pension schemes (think of falling bond yields as a reduction in the return available from the supposedly safest investments, which means that companies have to invest more cash each year in their pension schemes to cover a specified quantum of pension commitments).

According to the KPMG Pensions Monitor, the deficits of FTSE 100 companies have increased by £15bn this year to £65bn and by more than 60% since 2008.

And - as the Institute of Consulting Actuaries has helpfully reminded us this morning - employers are soon to face an obligation to "auto-enrol" all their staff into funded pension schemes, which will introduce an additional pension burden on them.

Here's what most of you don't need telling: more and more businesses and institutions are looking at these swelling liabilities and concluding that they're unaffordable - so many of them are devising strategies to scale back what they pay to future pensioners (a big hello to my own employer).

This is true of both the public sector and the private sector.

So if there's a faint smell of unrest and insurrection in the air, it may be that common cause for protest is being found by the two groups who would see themselves as the innocent victims of the Great Boom and the Great Bust: those so young that they haven't had time to build either career or savings; and those with retirement on their minds, whose savings income and pensions, they might say, have been deliberately squeezed to bail out the feckless.

Comments

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  • Comment number 1.

    It's not about old vs young it's about savers vs borrowers and speculators, which cross all age groups.

    Oh and we're in a depression. Nothing's been averted.

  • Comment number 2.

    I would not advise young people to save. One cannot live long enough to make a return on stocks and shares. At the moment after saving for 30 years I will probably only receive back in cash what I paid. Just to have stood still in value terms is impossible.

  • Comment number 3.

    'Here's what most of you don't need telling: more and more businesses and institutions are looking at these swelling liabilities and concluding that they're unaffordable - so many of them are devising strategies to scale back what they pay to future pensioners (a big hello to my own employer)'


    So the only conclusion I can come to is that the whole pensions thing (unless you are at the top devising the scheme) is a bit of a con.
    Fair enough, they can't scale back any entitlement already accrued but they suckered you in as a wide eyed graduate with the promise of an ok wage and a good pension scheme and now 20 years later they are downgrading the last 20 years of your working life.
    Funnily enough, the wage you were earning when you started was a lot lower than it is now with 20 years experience, now your wages are higher and your pension contributions are worth less. (worthless)

    It has been a con all along because if you had known what they were going to do you would have insisted that more of your wages would have been paid into the pension scheme at the beginning where it is now ring-fenced.

    What we are seeing is the death throes of the pensions industry, it is a long process and will take a working lifetime to happen but why would anyone just starting out buy into the whole pensions thing when it is plain for all to see that the baby-boomers have been sold a pup.

  • Comment number 4.

    Those who borrowed to spend have been bailed out, entirely at the expense of those who did without all the consumer goodies to save for the future. A painful lesson for every saver. What message do our politicians have for those who saved instead of borrowing? It would be nice to hear something- tell us we were fools, or whatever, but tell us something. The silence from the politicians of all parties is deafening.

  • Comment number 5.

    Nice to see you back.

    And while you were away doom and gloom became the news.
    With all the papers saying that it is gloomy, are there any bright spots in which I could invest for a rainy day?
    After all someone must be making some cash out there in the world and would need my investment Or am i being to cynical overall?

  • Comment number 6.

    The problem with pension is that from first joining a scheme at age about age 20 till the time one steps off this world at about 90 one is exposed for a total of 70 years to Government interference and the vagaries of the market, with little opportunity to do anything other than sit tight. I'm told that stress is caused by a feeling of not being in control of ones life - for me pensions would be a top cause of stress for the majority of the population were it not for the fact that many haven't got any non-state pension to worry about and those that have don't really understand what's really going on.

  • Comment number 7.

    As a baby boomer who has worked bloody hard 40 years to earn a good pension I take grave exception to blame being attributed to my generation. The reasons are fundamental:

    1. Governments raiding pension funds for extra tax
    2. Mismanagement of the economy by successive governements so that returns are appallingly low
    3. An equity market not worth investing in because of control by short-term speculators - my former employer's multi billion scheme has only 8% invested whereas it used to be over 60%
    4. Economists like you who have succesively got things wrong and lead us all in the wrong direction

    Let's not be spiteful and put the blame where it rightfully belongs.

  • Comment number 8.

    This pension crisis could be seen happening years ago. Why did no one complain in the press when Gordon Brown taxed pensions in his first budget.

  • Comment number 9.

    Bob, will you please stop calling people with pension plans savers, they are investers. Nobody would save for their old age because inflation would eat it away. So they buy a pension plan and pay for it in installments called contributions. If you don't believe you are using the wrong terminology just wait until another Equitable Life comes along and see what the poor devils who have been led up the garden path will be called. I bet they will be told investers must be wary, or something along those lines, they certainly will not be called savers by any politician or financial services spokesperson.

    Just remember, if someone tells you they will give you more back than you gave them, it's investing not saving. This includes so-called savings accounts at banks - as the tax payers of this country found out not too long ago.

    For current accounts where you get not interest you are paying for a service and, while banks are able to be bailed out, security. Also you are obliged to have these accounts due to the repeal of the Truch Act, and therefore cannont be paid in cash.

  • Comment number 10.

    Good Morning Robert and welcome back,
    Low interest rates are the lifeblood of the economy at the moment, which appears to be rebased towards loose monetary policy and tight fiscal policy into the future. The high interest rates of the 80s and 90s are luckily a thing of the past. Low interest rates encourage entrepreneurship, which is the only way the economy can continue to grow. The sooner everyone realises that low interest rates are here to stay and they start planning how to benefit from this the better. There is a saying that if you are dealt with a handful of lemons, start to make lemonade. So rathet than whinging about low interest rates, we all need to make the best of the huge amount of opportunitites that exist in today's economy.

  • Comment number 11.

    Welcome back Robert.

    Slowly, the pennies are dropping are they?

    Now why are are the Chinese buying gold rather than financial products like pensions?

  • Comment number 12.

    3. At 10:32am on 31 Aug 2010, BobRocket

    I agree, and you may as well add in a few other 'pups' we've been sold over the years: personal equity plans, endowment policies, payment protection insurance etc.

    In fact the British public have been royally stuffed by the financial sector throughout the whole of my working life.


  • Comment number 13.

    Sam_From_Hendon

    So which Cabinet memebr are you then, or are you the real one? There are so many impersonators claiming to hail from Hendon that it gets confusing.

  • Comment number 14.

    It's time Mervyn King was forced to put interest rates up a little, say 1.5%. It will barely affect lending - loan fees are hardly going to change - and if the government want to do something useful about the banks, force them to pay at least the base rate interest on deposits.

    Ok, sterling might get a little stronger but with the entire world in the economic doldrums (America is almost as badly off as Greece if you consider the fiscal gap) the big difference will be to savers. So far, for all the waffle, almost nothing has changed to the UK current account. We still don't know whether the money-printing programme was a success or not.

  • Comment number 15.

    Sam_From_Hendon don't be so naive. High interest rates encourage saving and paying down of the debt overhang that is causing this depression. More borrowing and speculating using cheap credit will only compound our problems.

    If more people saved then we would actually have capital in this country that could be lent to entrepreneurs as opposed to relying on cheap central bank created fractional reserve credit that earns interest to the financiers that own and control the central banking system through inflation. Stop being a tool of these people.


  • Comment number 16.

    This is what happens when government artificially distorts the price of credit to bail out the banks. And before anybody says that raising interest rates would hurt the real economy, it won't. Companies aren't borrowing because either there is a lack of investment opportunities, or because of a shortage of credit caused by the price being set artificially low.

  • Comment number 17.

    I am now 53 and for over 25 years I have been saying that pensions are a PONZI scheme. The promises could never be met with financial advisers city taking all those premiums. The tax subsidies given to the pensions industry are immense and overshadow those given to true wealth creating industries. Maths always wins in the end over financial 'wealth generation models'. I think that many local gouv, police and fire authorities will eventually be unable to meet their pension commitments and enter 'administration'. This could even include the BBC pension fund Robert. The government should place limits, taxes, reductions on the present and past pension liabilities to limit the damage to our young people. My advice remains, do not put money into a pension.

  • Comment number 18.

    I listened to the report this morning and concluded that once this measure is in place the government can then arrange to steal your compulsory pension just as it has stolen all the voluntary pensions.

    But then what do you expect in a country which has a debt in the region of GBP 6 trillion once all the pensions, debts and obligations are rounded up into one single big sum?

    The simple truth is that anyone who has tried to look after their affairs in an honest and responsible manner is now being crucified to pay the debts of all the grubby speculators. This is not justice: it is a swindle!

    There is a crying need for honest government in this country, honest politics, honest money and honest banks. Without the essential integrity that these measures bring there will never ever be any sort of recovery. It is time to run the spivs out of town preferably after a good tarring and feathering.

  • Comment number 19.

    Bobby's back, I thought it was something we said!

    Well I hope you had a good break, while you've been away there have been lots of whitewashing of important economic events by the meeja.

    Nobody has noticed the US treasury bubble, not worth mentioning I guess, I mean with so many bubbles to choose from. We all know what happens to bubbles eventually - and this one's a biggy.

    Never mind, you can rely on your pension....oh no, wait a minute, it's been robbed by the bankers - and some people just simply won't give up on promoting the possibility of Government profit from the bailout!

    http://citywire.co.uk/wealth-manager/taxpayer-to-make-27-billion-profit-from-bank-bailouts/a426930?ref=wealth-manager-latest-news-list

    You'll be hearing that one a lot.

    ...but not one mention of the Omen - the omen Robert what about the omen
    http://en.wikipedia.org/wiki/Hindenburg_omen

    Read it - then monitor it's occurences here:

    http://www.barchart.com/stocks/newhilo.php

    Never mind, we can all act surprised if we keep our head in the sand. Maybe the falling house prices in the UK and the US will finally shake the sheepole from their slumber...

    ..oh and there's rioting in the streets (rbs_temp) - or do the streets of Bradford covered with Nazi's throwing smoke bombs not count?

    If you read you history you will see the same patterns in 1930's Germany were very similar - another reaction to an economic crisis. Still there are those who profess this will all turn out nicely - perhaps like it did for Japan.
    http://business.scotsman.com/business/Japan-acts-as-rising-yen.6502991.jp

    You see - that's the problem with zombie coporations - they just keep sucking and sucking the blood until the host is dead.

    The Omen Robert - what about the Omen?

    While you were away I also 'read around' (I'm such a blog tart) - found this vey interesting piece on hyperinflation and how it could begin.

    http://seekingalpha.com/article/222575-hyperinflation-part-ii-what-it-will-look-like

    Watch your food prices carefully folks....remember the Government won't tell you until it's far too late to do anything about it.

  • Comment number 20.

    The key role of Governments must be to help all in our society to work together in a way which can ease the peaks and troughs of life for individuals.

    Am I right in thinking that this has been lost in the maize of media hype and self-interest?

    When oh when will someone get the plot . . . . .

  • Comment number 21.

    I was recently made redundant by my employer of 18 years. I left with a pension pot of £103,000 (Money Purchase Scheme). I wish I could transfer this pension pot to a fixed interest savings account. Even a modest 2.5% annual net return would tranform my pension pot into £165,000 by the time I am 65. Would I worry about my retirement then? Not at all. I blame the current legislation - where you have to buy an annuity and you can only withdraw 25% of your pension pot as a lump sum - for my retirement income worries.

  • Comment number 22.

    Robert

    Good to see you back on line. (!)
    Just gently pointing at ‘what are we going to do tomorrow?’

    “To translate, if you retire today with a pension pot identical to that accumulated by your older brother when he retired 10 years ago, your pension will be around half what he receives…”

    As your blog is read by a wide range of different people, from different places, all over the world, and justifiably so. With a lot of comments, (and a lot more lately!) that cover a wide spectrum of different perspectives are regularly posted – almost, always interesting and insightful, and importantly, a large and growing number of contributors take your post as a starting point, and from there start to reference, exchange and develop views on the growing seriousness of our times. Clearly a lot of people want to contribute.
    So lets see –

    Whatever the news of the day, on the last Friday of the month, why not also write a compelling ‘Big Picture - future view’ posting ? (yes please),
    especially as an open focus for - predictions – (dare to try some?)

    A lot of your readers have a lot to say, (especially recently) lets see what it actually is, and deepen the debate. I for one would like to see these posts that would show how the person sees the Big Picture in these times that affect us all, the reasons why, how they then add it up, and the clear conclusions, consequences, or vision… they come to.

    ‘Last Friday, Prediction Friday’

    Now that would be interesting!

    To make posting as simple as possible, contributors post their, clear and concise, Big Picture understanding and predictions at a set time, so they are easy to find - say 12 noon - Friday 24 September.
    Posting at the same time also avoids inadvertent influence (copying) and makes it interesting. And Friday also means that we have the weekend to read them.

    To be clear, the focus could simply be:

    What is the Big Picture?
    What predictions do you have from that?
    What does that actually mean?

    (for example: If a prediction is “the end of fiat currency – or the end of all pensions” OK, that might be right, but if it happened on Monday, what does it actually mean for us on Tuesday?)

    Of course views change with new experience and knowledge, so this is not asking for the ‘infallible oracle,’ but the best understanding so far.

    That is the idea - What do you think?

  • Comment number 23.

    Gordon Brown was only ever concerned about helping those with a mortgage, a noble deed but there is of course a dark side to it. That is that savers have found their savings completely devalued but the tragedy is that most people with a pension scheme at work have not appreciated that they were actually in the same boat. Interest rates going down to half of one percent and staying there for a protracted time have meant that the pension schemes are largely treading water. Treading water if you are 50 is bad enough but if you are 30 years old and really do not see your pension as very important, you should do. Companies that gave away final value pension schemes should have called in the company psychiatrist long since.

  • Comment number 24.

    Pensions are the biggest problem facing this country. How in current conditions can you encourage people to save when the industry and government conspire to make the whole process so obscure and byzantine. Simplfy and don't tax savings is the answer. Just for the record I would under no circumstances put savings into a money purchase scheme as you have no inkling what you will get back and at 5%-6% return PA that current annuity rates are paying why lock yourself into that!.

    Lastly the low interest rates we have at the moment may last for a while yet but inflation sits on the horizon like a growing black cloud for the ecomomy and rates may eventually have to go up and significantly. presumably under these circumstance the shortfall in most pension schemes will then magically disappear so companies et al can all take contribution holidays again!.

  • Comment number 25.

    So the real question is to what extent the poor state of pension funds reflects the oversize rewards in the banks and finance industry? Since investment operations do not (by and large) actually generate wealth these kinds of 'casino' operations out of which bank staff have done so well can only make money at someone else's expense. This seems mostly to have been at the expense of our poorly-managed pension funds; mine has sent round a notice saying that the have to 'take risks' to balance the books - which may mean they are bust but if they gamble some they might get lucky - though the investment manager 'bookie' seems a more certain beneficiary!

  • Comment number 26.

    Is your cup half full or half empty?

    So one third of large companies can't afford to fund their pension deficit.

    Presumably, then, two thirds of companies can fund their pension deficit (or haven't got a pension deficit)!

  • Comment number 27.

    Well, well well.

    http://www.guardian.co.uk/money/2010/aug/31/mortgage-lending-plunge-july?utm_source=twitterfeed&utm_medium=twitter

    Mortgage figures plunge in July. Bank of England report shows mortgage lending at second-lowest level since records began

    Don't suppose those who aren't buying houses aren't buying pensions either - must be the ever decreasing pension pot for parents who can no longer subsidise the children desperate to start their own home, whilst being up to their eyeballs in uni debts and poor prospects!

    Just imagine, no longer will the Daily Snail be complaining about the hoodies and those dressed in Black rampaging through the city in the anti-globalisation marches.

    They'll be complaining about the terrible behaviour of the 50 year-olds and the buss-pass waving pensioners being encouraged by the robe-clad homeless graduates waving their degrees and debts in one hand and their UB40s in the other!

  • Comment number 28.

    I avoided having a formal pension because it was apparent that there were more feckless voters than prudent ones, and that they would vote for a government who would redistribute money from the savers to the indebted. I did not know how, just that it would be done.

    The way they've done it, by low interest rates and Quantitative Easing took me by surprise, after the inflation of the 1970's I never thought governments would print money again. But they need to do this for political reasons, to spread the damage of bad debt around everybody, prudent or reckless.

    And at the bottom of it all, i) fewer young people will be working to support more economically inactive elderly people and ii) We don't manufacture stuff enough but love to pay for imports.

    All the measures so far are just rearranging the deck chairs.

  • Comment number 29.

    > To translate, if you retire today with a pension pot identical to
    > that accumulated by your older brother when he retired 10 years ago,
    > your pension will be around half what he receives.

    That's only true for those foolish enough to throw their money away into pension schemes and annuities. Don't forget - these schemes are administered by the same knuckle-heads who work in banks. You'll get nothing from annuities and pension funds, once all those thieving, conniving scum-bags in “The City” have taken their massive share.

    Nope – save the cash; pay your NI stamps for 30 years; use ISAs; buy good businesses; get a public sector job and pay for everything cash only. Cut “The City” out of the loop to a maximum possible extent. Alternatively, “enjoy yourself” into an early grave so you don't need any money!

    But build a pension fund? Drop that idea right now – it's a suckers game,

  • Comment number 30.

    #19. At 11:25am on 31 Aug 2010, writingsonthewall wrote:,

    "The Omen Robert - what about the Omen?"

    Been an interesting month has August for airship theory. Or should it be called airsheep theory.

  • Comment number 31.

    Welcome back Bob and all the usual suspects. Things definitely seem to be deteriorating and the pension schemes are merely a reflection of the underlying problems. Like WOTW I've been moonlighting a few other, less rose tinted glasses web sites like Prison Planet which has a great money watch section eg. http://www.prisonplanet.com/quantitative-easing-wont-help-the-economy-but-will-just-create-another-wave-of-mergers-and-acquisitions.html
    I've also been doing some more research, and am of a view that Monetary Reform is an absolute necessity if there is any chance of overcoming the problems, see http://www.bankofenglandact.co.uk/.

  • Comment number 32.

    Hi Folks,

    Just wanted to say thanks for bailing me out.............

    Oh that will be they day Robert, shame on you for pitting Rich against Poor. Anything to keep the great Ponzi scheme afloat eh?

  • Comment number 33.

    Sadly I have now passed 45 and so fall into the camp of those people whose expectations of retirement dwindle.

    I have never relied on, and never will rely on, the state pension because govts change and there will come a time when the universal state pension is abolished.

    As annuity rates go down the only option is to work a bit longer. Of course that is the same solution as those who rely on the state pension - could it be that the problem is related?

    Of course it is. We are living longer. If you want to retire at 60 on a decent pension (lets say £30,000 a year) then as a man you need a pension pot of about £600,000 (women need more because they live longer on average), 15 years ago you could retire on the same pension with a pot of about £300,000. Assuming you went to university and did not start a pension until you were 25 that means you have 35 years to save £600,000, now admittedly compound interest helps but even with that you still have to save about £15,000 a year, every year to get the pot big enough. But of course those are the same years that you have to pay for a mortgage, the expense of children etc.

    I may be overly pessimistic but I doubt anyone earning under £80,000 a year could put £15,000 a year into a pension.

    My view is that any one earning less than £50,000 per year has no chance of being able to retire at 60 on a decent pension these days.

    Welcome to the new era of ever longer working lives

  • Comment number 34.

    I'm sorry, but what's the reason not to save? 6 year fixed term saving ISAs will yield you on average about 4%. Invest in one company at a time when its price is below its value and hold it for life and you'll receive about 6% annual (3% dividend and 3% retained). Hold it in a ISA and you pay no tax, maybe £5k in each a year. Alright, if you buy companies with 250 P/E ratios in booms and trade 200 times a day incurring fees reaching about 10% of your investment then of course you do badly. Invest sensibly and you'll do fine. I mean if you just took the savings route and put away £5k a year (maybe buy a less good car), then you'll finish in 30 years with £300k stashed away at a cost of £150k. To not double an investment over such a long time frame shows poor investing.

  • Comment number 35.

    Employers have just done what the Government did - behave as if the "good times" were going to last for ever. Instead of using some of their healthy profits during those years to build up continencies in their pension liabilities for when times were hard, they spent them on bonuses for themselves or higher dividends for shareholders. So who loses out at the end of the day? Their workers. Who actually makes these companies their profits? Their workers. As people start to realise that their futures have been compromised by greedy & short-sighted capitalists, who've preferred to reward their own class &, even more, themselves with the labour of their workers, there may be more than just a whiff of insurrection in the air. Greed has been rewarded (see bankers) & the ordinary worker (private or public sector) shafted.

  • Comment number 36.

    Welcome back after your break Robert. I hope that you enjoyed it.

    I am interested in your views on pensions as it is an important subject and they are getting a bad press. I notice that you mention the falls in annuity rates and was made aware of the dangers in taking them by an article by notayesmanseconomics on the 27th May. After all falling bond yields have driven them lower but if the move is only temporary it may not be wise for people who may live for 20 or 30 years to lock themselves into such rates.http//:notayesmanseconomics.wordpress.com

    Do you have any views on the changes at the IMF and the overnight falls in Japan after the moves by the Bank of Japan?

  • Comment number 37.

    I thought that the BBC scheme was a Final Salary Scheme?

  • Comment number 38.

    Tell the truth. Pension systems are the biggest Ponzi scheme ever. Isn't it paying current investors with contributions of future investors the definition of a Ponzi scheme? I thought they were illegal. And don't ask why they collapsed.

  • Comment number 39.

    Robert have you forgotten about the Bankers?
    These greedy people need their bonuses and they get it from us.
    That’s where our pensions are going.
    Now forget Wales and get after the bankers.

  • Comment number 40.

    Just to elaborate on my last post,

    My take on Roberts last paragraph....

    'So if there's a faint smell of unrest and insurrection in the air, it may be that common cause for protest is being found by the two groups who would see themselves as the innocent victims of the Great Boom and the Great Bust: those so young that they haven't had time to build either career or savings; and those with retirement on their minds, whose savings income and pensions, they might say, have been deliberately squeezed to bail out the feckless.'

    So there you have it folks, it was the feckless that ruined our economy and thus your pensions.....Anyone know whatever happened to those pesky Bankers that lent this monopoloy money to the 'feckless'?

    Keep on peddling the Party line, just like the rest of the meeja!

  • Comment number 41.

    The maths of these things mean that the vast majority of people will be working until they are 70 (as long as they are able to of course).

    However can we just be clear that there is no compulsion to annuitise to provide an income.

    On the other hand there is only one guaranteed outcome of delaying taking an income for a period: you will receive an income for a shorter period.

  • Comment number 42.

    Those talented fund managers as we speak are piling into bonds guaranteeing the lucky pensioners to be returns of 3% if they are lucky less charges of course less inflation and less the losses when the bond bubble bursts.

    The only upside is that for a brief period it gets the public finances out of a hole.

    Happy days

  • Comment number 43.

    RP, the photo on your post has a certain irony. It shows one of the phrases used on pound coins: Decus et Tutamen - 'An ornament and a safeguard'.

    It seems to me you think it is now more the former than the latter.

  • Comment number 44.

    It is always the same the 'great' British worker / public paying through the nose for other peoples greed and mistakes. If any of us ordinary folks were guilty of fiddling company books, delibrately lying or misleading to mis-sell products etc we would be sacked without anything more than our month's salary due! Her, bankers, corporation executives and polititions get away with murder and leave post with millions (usually of our money) in their pockets.

    It has to stop, and soon. If we are destined to a life of a pauper on our devaluing pensions then so should those responsible for this economic mess. It will only get worse too, as banks are still panfully slow at lending, asking for ridiculous deposits for mortgages and we're now facing an increase in unemployment in public AND private sector of hundreds of thosuands over the coming two years.... and still the fat cats take all the cream a smile!!

  • Comment number 45.

    "19. At 11:25am on 31 Aug 2010, writingsonthewall wrote:


    While you were away I also 'read around' (I'm such a blog tart) - found this vey interesting piece on hyperinflation and how it could begin.

    http://seekingalpha.com/article/222575-hyperinflation-part-ii-what-it-will-look-like

    Watch your food prices carefully folks....remember the Government won't tell you until it's far too late to do anything about it."
    Interesting article, especially the point about why Government's turn on the printing at the height of the crisis. This largely reflects Jens O Parson's book. In essence the supply of money comes flooding back into the economy from "paper sources" eg the stock/bond market, and is swallowed up in the prices of goods. To stop it you merely have to turn the taps off and lets prices stablise at a higher level, and take the economic punishment that arises as a result. I have little doubt its coming, the key question is when. The Germans solved it by creating a new currency with a fixed supply, and exchanging the old for the new at a rate of 1 trillion to 1 new Mark! There was a difference though. The underlying German economy was strong, the America one is literaly falling apart at the seams.



  • Comment number 46.

    Are you assuming that interest rates remain at these levels for the next twenty years?

  • Comment number 47.

    "34. At 12:24pm on 31 Aug 2010, Rob wrote:
    I'm sorry, but what's the reason not to save? 6 year fixed term saving ISAs will yield you on average about 4%. "
    With RPI inflation sitting at that or higher, your not going to save much.
    People invest to hedge against inflation. But the fact is that the monetary supply is perpetually growing and constantly eroding the value of our currency at the same time, making the challenge even greater, an inevitable result of our debt based monetary system. Whats the FT100 at the moment, about the same level as the early 90's?

  • Comment number 48.

    Already been through this as have an Equitable Pension, where will it end - a couple of the pound coins in the pic look like fakes???

  • Comment number 49.

    To be honest I now have 3 pension funds, all 3 worth less than the cash that has been put in them - despite the youngest being over 15 years old.
    Pensions are a gamble at best - and for all the Conservative bluster on casinos the Conservatives 'forced' us all into the biggest bunch of gamblers when they privatised our national industries and made us take out 'personal pensions'.
    I wish I had never wasted a penny on any of the pensions, and I certainly don't intend wasting any more. Frankly if I managed to get a 'decent' pension from my 'investments' (gambles) then all that means is less state support and subsidy. I am far better off taking the cash and 'investing' it in some ideas of my own - if they work I end up rich enough not to care, if they don't then I will be looked after anyway. Sooner people realise that the pension 'industry' is yet another scam run by over paid and over hyped rich kids in the city and move away from it the better.

    If you can prove me wrong then I would be interested in reading it, but to be honest the pension 'industry' is clearly a rip off...

  • Comment number 50.

    But at least there's one less reason for impoverished youth to take to the streets to overthrow the pampered baby-boom generation, which arguably created the economic mess we're in.

    Thank heavens for that!

    It wasn't us who allowed the massive house-price inflation thanks to poor monetary control and certain lenders taking acute advantage of Brown's useless regulation. It wasn't us who allowed a boom in spending on the back of a huge credit expansion programme, training people to spend beyond their means rather than save.

    There's also the matter of robbing pension funds of tax relief, another Brownian bonus. Then there's the matter of the 10p tax abolition that screwed female pensioners royally (some of whose annual pensions were still just greater than the revised tax allowance. The younger generation has been swindled by a bunch of incompetents over the last 15 years or so.

    We baby boomers did what was required of us, paid our 6/- or 30p in the £ tax; we hoped governments could be more honest than to point the finger at us when things go belly up, as now.

  • Comment number 51.

    40. At 12:49pm on 31 Aug 2010, JavaMan


    I think Robert was talking about the banks and those who borrowed to finance company take-overs when he said 'feckless' rather than the mother down the road who had to borrow to buy the school uniform. After all she was met by a sales agent wearing a badge that clearly said Financial Adviser' rather than sales person...

  • Comment number 52.

    Robert - there is a massive pensions apartheid opening up between the public sector work force and private sector workers. Incidentally I wouldn't advise any young person to save for a pension because when you come to cash them in they are worth next to nothing.

  • Comment number 53.

    Am I unique in reading your blog Mr P - with the sound of your unique enunciation in my head...? Being at both ends of this so to speak - my wife and I as oldies and the kids as newbies we are indeed at an interesting juncture. I am due to 'enjoy' a final salary pension scheme in a few years and my wife can't understand why it has to be an annuity as opposed to piles of cash. Sad to say they hope that I and others within the scheme snuff it before it pays out in full. This in many ways seems to me to be the primary reason for the fix we are in. The medical profession has performed far better than the actuarial profession and the fruit machine of old age is spluttering in the amusement arcade of life!

  • Comment number 54.

    As we all know, the UK operates 2 different types of pension schemes, defined benefit (final salary or variant) and defined contribution (money purchase). With defined benefit the pensions risk lies with the sponsor (employer or state) and with defined contribution the risk lies with the pensioner.

    There is confusion and muddle with pensions over the years because the authorities setting the rules and regulating (and taxing) the pensions have (a) not understood the risk and (b) have not themselves been exposed to the risk. Sorting things out for the long term requires structural change.

    The first step in this change should be to end defined benefit pensions for (a) MPs and government ministers (b) all senior Treasury and other senior civil servants whose activities impact on the economy. MPs' pensions should be defined contribution only - compulsorily invested in firms active in the UK economy, with the larger portion exposed to/invested in UK equity.

    This ("little") change will align interests of our MPs (representatives) with their own success in the economic performance of the country, rather than, as at present, isolate them from the consequences of their economic (mis)management.

    Would the Equitable Life mess have occured if the regulators shared in the risks of the unaffordable annuity guarantees?

    Would Gordon Brown (for me, always "Pension Destroyer GB") have changed the taxation of pension funds if he was himself directly exposed to the outcome?

    Would the mortgage bubble and consequent banking crisis have been allowed to happen if the MPs pensions were exposed to the bursting of the bubble?

    And, would MPs be happy to approve pension fund charges at 1% and more of the fund, if it affected the return on their own funds?

    So far as the state's current promise of final salary pensions, we should consider a similar approach as established for the private sector Pension Protection Scheme; the UK state can now longer afford the public sector pension commitment. Rather than the tax payer bearing this burden, the public sector pensions should be "hair cut" as happens in the private sector - 90% pension pay out, and ceiling at £27k, or so.

  • Comment number 55.

    I don't want to infer that you sound subversive Robert - but come the revolution.

  • Comment number 56.

    @ 24. At 11:46am on 31 Aug 2010, mintman wrote:

    > Pensions are the biggest problem facing this country.

    It is not the size of the problem that matters most, but whether it can be solved.

    We can easily solve pension difficulties by sharing properly. But we can never solve death, even though it is a much bigger problem facing this country than (say) pensions.

    But to share properly, we need to send "The City" back to school, so it can learn what it's there for.

  • Comment number 57.

    60-65 year old retiring private sector defined contribution person with the average private sector pension pot of £30,000 would be able to buy a £1K a year index linked pension.

    Meanwhile a banker associate of mine working for one of the large now state owned banks has just taken voluntary redundancy - 2 years' salary payoff, plus a deferred final salary pension.

    That sums up the enormous gulf between any on defined contribution pensions and those (public and increasingly fewer private employees) on final or career average salary schemes.

    WHEN is anyone going to do something about it ?

    The answer ? The public (and those in similar private schemes) sector pension entitlement (along with their enormously expensive pay offs) must be massively reduced with the savings fed to all (private and public) via an increased state pension for all.

  • Comment number 58.

    It's all very well saying to the youth of today "don't invest in pensions" but what else are they supposed to do to try and get themselves an income when they reach their 70s? Surely the tax benefits of a private pension when shrewdly invested in companies/ funds are the best chance of a decent income after they retire?

  • Comment number 59.

    Welcome back Robert, and indeed, one suspects there is a lot of rather depressing news to come this winter, as redundancies, lower house prices and general declines in household spending start spreading through the economy.

    Of course, to take issue with you immediately......

    Your comment that:

    "........ the pensions outlook for those aged 45 and over no longer looks quite as spectacularly good as it did.

    It's mostly to do with the slashing of interest rates and the unprecedented easing of monetary conditions, engineered by the Bank of England (and other central banks) to prevent the Great Recession turning into a depression".

    This may be true, but you've failed to mention the much greater longer term problem that anyone saving for a pension in the UK has had for many many years (and which everyone, bizarrely, seems to take as a 'given') - namely the cartel that in one way or another controls all money assets in the UK - called the City of London.

    The general derisorily low returns generated for any money that the UK population puts the way of the banks/funds/trusts etc in the 'City' over the very long term are basically caused by excessive charges.

    These are only sustainable through cartel action by the institutions in the city, who conspire to keep salaries and bonuses high, and we all know the component parts of such 'complex cartel' action - 'we have to pay the going rate' but only when it is going up not down - the revolving doors between regulators and banks - the 'if I don't pay those who work for me more, then I won't be able to pay myself more' interests of the bosses - the asymmetric rewards on gains/losses which encouraging risk taking etc etc

    You've cited in your blog before now the detailed report on pensions in the UK carried out by the RSA a few years ago, which provided such damning proof of this - that across all the funds looked at, just one thing determined long term performance - the level of total charges levied on the fund. Nothing else, not the ability of the fund manager, not the size of investment institution, not the size/specialisation of the analyst team etc, no, absolutely nothing else.... just the size of the charges.

    So, in other words, it is a fairly direct relationship - if it is every company in the UK that is having to increase it's prices to make larger profits to fund it's pension fund deficit, then, admittedly somewhat unknowingly, every man, woman and child in the UK is being called on to pay more for their goods to help keep our money-managing and lending friends in the manner in which they are accustomed.






  • Comment number 60.

    I'm sick to the guts of the cosy public sector creaming off my taxes to subsidise its own pension schemes when mine has gone down the tubes.
    I think I'll just spend spend spend and let the state look after me when I retire - impecunious but having lived well in the meantime.
    With annuity rates at 4% who will ever be able to afford a decent pension - unless you happen to work in the public sector of course.

  • Comment number 61.

    For anyone under 45 it must be a difficult set of choices to make about retirement. However what worries me about a lot of the comments is the deterministic approach taken..."Oh, I wouldn't advise anyone to save for a pension"... Oh, why bother to save, your savings are eroded by inflation"..."Who knows when the next Equitable Life will emerge" ... etc,etc. Yeh,yeh!

    However you approach it you have to save for your future. How can anyone live solely on the State pension, even if you qualify? One size doesn't fit all but spread your risk. If you can do it get a property first. At a suitable time years ahead start saving. Widows and orphans stuff first, maybe a pension, ISA's as one blogger liked, then more risky investments like shares and unit trusts later if you can afford the risk!

    Unlike Mr Two Brains Willett, I think the Baby Boomers are more wealthy than their predecessors partly through not getting into shed loads of debt rather than acting deliberately to stuff the upcoming generations. Whatever you do live within your means and don't put all your eggs in one basket.

  • Comment number 62.

    @ 57. At 2:02pm on 31 Aug 2010, Upthebarns wrote:

    > The public (and those in similar private schemes) sector pension
    > entitlement ... must be massively reduced with the savings fed to
    > all (private and public) via an increased state pension for all.

    No. The public sector have had the guts to bargain hard and beat the bosses.
    We should reward aggressive self-interest, according to the bankers etc.

    So we have to get the private sectors workers to toughen up, and beat money
    out of their grasping bosses.

    Those people have to be taught to look after themselves, first, like
    bankers do. They have to at least try to catch up.


























  • Comment number 63.

    Companies are finding pension liabilities unaffordable are they? As you point out Robert this seems only to apply to some of the workforce not the CEO and senior management team. It's not so much that Pensions are unaffordable as businesses see them as an easy target to cut costs. As pension schemes are closed to new members and made more expensive for existing members that is a pay cut for the workforce. If that pay cut were proposed against take home pay there would be strikes and people would leave the company, but hidden under the pension cover they barely raise a murmur.

    Pension deficits are the reason we are told but as reported on the BBC pension deficits are "very volatile":

    http://www.bbc.co.uk/news/business-10855116
    stated
    "The deficit of all final-salary pension schemes in the UK widened in June, the Pension Protection Fund (PPF) said last month.

    The collective shortfall of 6,653 schemes stood at £21.8bn, compared with a surplus of £11.7bn a month earlier."

    Hold on, a £32bn swing in 1 month, is this credible? Where were all the headlines in May - Pension crisis over pension funds have £11.7bn surplus! Depending on your criteria and the rules you choose to employ it is quite possible to portray pension funds as in trouble or serenely safe. So don't be fooled this is just a way for firms to cut costs and for the rich to get richer at the expense of the rest of the population.

  • Comment number 64.

    I saved for a pension from the age of 38. I put in £35000 of my own money, it rose to £100,000 the took a dive with all the recent financial troubles. A year before the worst I transfered it into a safer fund (in the same company) I am now retired at 65 and recieved $65000 which gave me £80 per month pension. At least I have something rather than nothing! I hate Gordon Brown though & governments for messing with the Pension Funds.

  • Comment number 65.

    Returning to my old theme - Mervin King is responsible for all this - even through he denies it. (Sorry to be repetitive, but this is, and remains, the core of the problem!)

    The value of money is destroyed. It is a dead man walking. Rates at 0.5% demonstrate that he (Mervyn King) is leading and presiding over the worst problem we have even seen in the economy (since the founding of the Bank of England).

    All this stuff about borrowers vs savers old vs young is tangential to the real issue of de-leveraging debt. In the UK and the USA (and Japan) the primary issue is that there is far far too mush debt gone into financing property - this money has vanished! This is the inflation that Mervyn King was warned about over and over again but which he chose to crassly and wantonly ignore.

    House prices MUST collapse BEFORE the real economy of making and doing things can recover. Those who were 'conned' into buying at excessive multiple of income will suffer the consequences - that is inevitable. Interest rates MUST return to 5-7% before annuity rates can recover and company pension funds become solvent again. The people who say that rates must stay at 0.5% are fools. They have not yet understood the reason for the recent economic collapse - over valued property driven up by an insane interest rate management regime just as the Bank was warned about. In a real sense until this coming and inevitable collapse works its way through the economy we can not recover - so it must do so - this is equally true in the USA (and Japan).

    We must both, as a Nation, and individually, live within our means (at rational long term interest rates!) This is the ONLY way out of this morass. There is no fiddle or quick fix.

  • Comment number 66.

    19. At 11:25am on 31 Aug 2010, writingsonthewall

    Some interesting links there, here's one for you:

    http://www.bankofenglandact.co.uk/

  • Comment number 67.

    As always it is the innocent who suffer. When I started to save for retirement through a pension plan I was promised a decent living income. Now, as I approach retirement I find that that decent income has dwindled to a desisory sum.
    Yes the stock market can go down as well as up...... don't we all know this....but it seems that the companies that 'manage' our investments still extract their anuual fees and bonuses even if they do an abysmal job. I note that our 'pensions providers' still manage to post healthy profits and growth every year.
    If I do a bad job I expect to suffer the consequences; why is the financial industry not subject to the same natural justice?
    I agree with many of the other comments which state: we, the savers, have been taken for a ride by the financial services industry and no one in government or the media gives a fig.

  • Comment number 68.

    Well hello and welcome back RP. I can guess what your holiday reading was, you've been reading Stephanomics haven't you. " .. the pampered baby-boom generation are arguably to blame for the economic crisis...". Almost a direct quote from Steph's reading of Willett's book. I think both of you need to explain yourselves! I, as a 'boomer', I do not feel remotely 'pampered'. If I was a boomer banker I would. But to say the whole generation did wonderfully well out of the last 40 years is going a bit far. Most of us are the victim of circumstance rather than shapers of it. We didn't engineer the hyper inflation and oil crisis of the 70's, nor did we vote for Thatcher (two thirds of us didn't). I, like quite a few others, had a bad 80's (I lost my house), a lot of others lost their livelihoods too - think of shipbuilders, miners, steelworkers and carmakers. So how were we pampered? How did we manipulate things to favour ourselves?
    Regards, etc.

  • Comment number 69.

    60. At 2:17pm on 31 Aug 2010, jacko wrote:
    “I'm sick to the guts of the cosy public sector creaming off my taxes to subsidise its own pension schemes when mine has gone down the tubes.
    I think I'll just spend spend spend and let the state look after me when I retire - impecunious but having lived well in the meantime.
    With annuity rates at 4% who will ever be able to afford a decent pension - unless you happen to work in the public sector of course.”

    And there speaks someone who evidently doesn’t know what he is talking about!

    My wife works in the public sector and, contrary to popular belief, she isn’t sitting on a goldmine. She works in the education area (though not a teacher) and earns less than £20K per year pro rata but loses 25% of that because she doesn’t get paid for school holidays.

    If she retired today on full benefit she’d get £7,500 per year but, as it happens, she’ll get a lot less than that because she took a 10 year break to be at home in the early years of our 3 children, so her highest expectation based on current salary is only around about £5,500 per year.

    Which is hardly a lot of money is it? Certainly not what I would call a “decent pension” as it wouldn’t even cover our basic household operating costs let alone pay for any “luxuries” such as a car.

    Your employer has probably milked you for far more than that in profits they could have paid to you but paid to themselves instead.

    Your pension provider has probably taken more than that as well if you’re with one of the less scrupulous pension administrators that lends your assets out to speculators for shorting but keeps the fee for themselves rather than giving it you (the asset owner).

    So if you want to aim your anger for being financially screwed at someone then I’d suggest you start with your profit-grabbing employer and then your fee-grabbing pension administrator.

    Those are the people that have really done you over and who we should really be focussing our attention on.

  • Comment number 70.

    62. At 2:22pm on 31 Aug 2010, Jacques Cartier

    Well said. It always strikes me as so childish when the kee-jerk response is 'If I've not got it, then don't let anyone else have it', when a far better response could be 'Hold on, if he's got it, then I'm having it too'. But then it would take a bit of gumption to stand up to the boss and insist they comply with worker demands...

    Perhaps consumer 24-hour strikes rather than worker strikes would be more effective and make those at the WTO realise they ain't as all-knowing and wise as they like to think they are...

  • Comment number 71.

    Number 62:

    "The public sector have fought hard to beat their bosses"

    And who are their bosses ? MPs and civil servants on massively generous pensin schemes.

    It is exactly the same as happened in the banks.

    Employees get very generous pension schemes and incredible redundancy terms (when set against bog standard defined contribution schemes or statutory redundancy terms). Why ? Cos their bosses benefitted by even greater amounts. Noone was watching the bosses.

    The immediate owners/shareholders were anonymous fund managers, feathering their own nests, while the ultimate shreholders are, partially, the defined contribution pension pots that absorb all of these costs.



  • Comment number 72.

    Even more worrying are the likely effects of Bertie Wooster's cuts.

    There is now no doubt that they have inherited a steadily improving economy.

    Don't accept my predictions - people need to keep track of the figures for second quarter growth, etc and compare the steady improvement up until now with what happens from this autumn onwards.

    The only people adding to their pension pots will be tory MPs and the spivs who bankroll them.


  • Comment number 73.

    What a lot of posters seem to have forgotten is that inflation is compounded as well as interest.

    It's good to see your £100K contributions compounded up to £300K over 30 years, but not so god if that £300K is only worth £50k relative to it's value at the time of the first contribution.

    If you allow for an assumed amount of inflation, the target figure for the final pension pot needs to be probably six to ten times the amount that seems reasonable when you start to make your contributions. IT's true that as your salary grows you'll probably increase the size of the contribution, but this increased contribution won't have the benefit of the same growth period.

    The paradigm on which the concept of pensions is based - of continued growth substantially in excess of inflation over the long term - has failed and pension vehicles are no longer fit for purpose.

    Rob

  • Comment number 74.


    Time to stop whining and take responsibility for our own retirement plans rather than relying on other people / the state.

    Think all pension schemes are a rip-off? Find another way of producing income in retirement

    Think annuity rates are a rip-off? Take income from your fund instead and defer annuity purchase for as long as possible

    Think fund management charges are too high? Invest in index tracking funds / exchange traded funds or directly in shares via a SIPP.

    Want to retire early on a very large pension relative to contributions paid? Join a generous public sector scheme while you still can, e.g. become a policeman / fireman / MP

  • Comment number 75.

    #33. At 12:22pm on 31 Aug 2010, Justin150 wrote:
    "...If you want to retire at 60 on a decent pension (lets say £30,000 a year) then as a man you need a pension pot of about £600,000"

    ... and the rest. Current annuity rates are around 2.5% ... They haven't been 5% for ages. For a $30k pension, you'll need a cool £1.2m pension pot. Average Joe (earning ~£30k/yr), putting away 10% of his salary, and assuming annual growth of 2% and a bit of compounding will be lucky if he has £200k at the end of his working life (say 45 years). At 2.5%, that's £5k/yr ... less than even the state pension currently provides.

    There's a huge problem here ... partially created by government. Gordon Brown's tax raid is part of the problem, but the real culprit is Harold "You Never Had It So Good" Macmillan. He broke the link between National Insurance and the State Pension ... he used NI as a tax; and thereby gave the baby boomers one huge tax break ... which their children have since had to pay for. In effect, this working generation have had to pay 2 pensions ... their parents' (Thanks Harold) and their own ... which is now getting taxed (Thanks Gordon). But that's only part of the story ... how many people are actually fit to work beyond 70? The reality is that whilst we are living longer, we are not necessarily fit to work for longer. The wider the gap between the end of our working life and the actual end of our life, the bigger the problem. If the reality is that on average we work 40 years, and are retired for 20, then should we not be putting away 30% of our income to pay for the 30% of our time that is no longer productive? Or perhaps something more radical? Logan's Run anyone?

  • Comment number 76.

    #58. John_of_Dean wrote:

    "It's all very well saying to the youth of today "don't invest in pensions" but what else are they supposed to do to try and get themselves an income when they reach their 70s? Surely the tax benefits of a private pension when shrewdly invested in companies/ funds are the best chance of a decent income after they retire?"

    The problem with pension's investment is that the pension fund managers are pretty bad at investing your money (judging by their historic performance - as indeed are all investment management companies) as they seldom even match the share index and take a fee for doing so and the entire benefit of your tax break. The best thing is probably to save and manage your own savings - keep away from managed pension funds - that is what any rational study of their performance must conclude!

  • Comment number 77.

    There are many that cannot possibly hope to save for any kind of pension because they are required to be "flexible" over wages from their employer and have to live (correction, exist) on minimum wage. To be poor isn't automatically to be feckless.

  • Comment number 78.

    72. At 3:21pm on 31 Aug 2010, jon112uk wrote:
    There is now no doubt that they have inherited a steadily improving economy.
    ---------------------------------------------
    Remember that we are not an island in terms of global economy.

  • Comment number 79.

    1. At 10:18am on 31 Aug 2010, sharpcj wrote:
    "It's not about old vs young it's about savers vs borrowers and speculators"

    Someone who doesn't have a pension isn't necessarily a borrower. Indeed, many younger people have a deep distrust of banking and choose to invest for their future in other, 'safer' ways.

  • Comment number 80.

    I asked a Pensions Adviser a few years ago if I should invest in a company pension or in property. They waffled so much I took the latter option and bought apiece of land instead on a mortgage which cost me what my pension contributions would have been each month. After spending the capital plus a bit more on developing the land it was sold six years later for 5x the purchase price - netting me around £60k after the mortgage, tax and other expendture was accounted for. It was a bit of a risk and hard work - which is the key to how to make money, instead of relying on bad advice from pension advisors, companies and governments, who have no desire to increase personal wealth of normal people. Governments are run for the benefit of the people in government. Example - Champagne Socialist Tony Blair and his mates!

  • Comment number 81.

    I think many contributors are missing a fundamental point re pensions.

    Were they ever affordable as we know them?

    Retrospective history will judge them to be a special singular event of a post-war dream which proved to be unsustainable. Pensions = future liabilities.

    Many public sector pension schemes are simply ponzi schemes requiring new entrants to pay for payouts (as indeed are private sector). The government can't afford them.

    If you're setting up a business now you can't afford them. Companies can't afford them without customers indirectly paying for them.

    The whole pension expectation is a complete and utter fake.

    Even if you were planning pension contributions no employee should ever have their contributions tied up with one firm either. The system for any long term saving which may attributed to be a 'pension of some form' should be set up with the HMRC under your NI number.

    Ah well - may be a radical realisation isn't far away though awareness by itself will solve nothing but at least the fantasy economics world eventually stops.........

  • Comment number 82.

    Robert,
    Please give your reasons for blaming the "pampered baby-boom generation" for creating the current economic mess. As one who retired on a reasonable pension, two years ago, at age 65, after working for the same company for 43 years I consider myself fortunate but not pampered. I worked very hard and fully paid for my pension.
    The culprits that created the economic mess are surely successive corrupt and incompetent governments that became so infatuated by the financial services industry to the point that it could do no wrong. This situation prevails today. Take a look.
    1. Banks are currently taking margins at their highest level for 100 years, whilst giving savers the lowest levels of interest in recent history.
    2. Investment banking is enjoying huge profits from huge fees. Who is agreeing these ridiculous fees? Are they stupid or corrupt or both?
    3. The banks will soon be looking forward to another round of record bonuses.
    4. Unexceptional executives have found how to secure themselves monster salaries by scratching the back of the Remuneration Committee and threatening shareholders.
    5. Mergers and acquisitions continue unabated and yet statistics show that 75% of them do not provide the claimed benefits, merely satisfying the overinflated egos of those same unexceptional executives. The £400 million in fees to purchase Cadbury will soon have to be paid for by extra pennies on every chocky bar or perhaps the bars will become smaller for the same price.
    I could go on!
    The point is Robert who pays for 1. 2. 3. 4. and 5. above? Why, you and I and the rest of the population of this ill governed but potentially wealthy island.
    Robert, get your sights on the real culprits, not the baby-boomers who paid heavily for their pensions.
    By the way, I am sure you are aware that the Masters of the Universe are currently working on plans to relieve all of us of our pensions. Being "experts on risk", they are offering to cover the pension fund deficit of companies for a fee. Although the fee may be substantial many companies would see this as an attractive option, until that is there is a need to call on the cover! Ten years from now you will see an even worse situation with respect to pensions and it will all have happened under the nose of government.
    John Redman

  • Comment number 83.

    Hi Robert
    There are plenty of solvent new business' and old business' which have innovation and vision as their driving force and are excellent vehicles for long term pension fund investment. It just means the pension funds have to change their investment model from tracking indices and buying shares in 'Brand Fronts' to long term investment in technology associated and infrastructure innovation.

    On the generation matter. We don't have a deficit problem nor do we have a generation problem. We have a problem with rules and regs that add costs to business and consumers that are equivalent to the tax take and probably more. Our govt is about to make millions of professional public servants, private providers and others unemployed in an attempt to prop up one of the beneficiaries of these regs, house prices.
    It won't work, because net of benefits the saving per public servant is under £5000. Add in the unemployment that results from a lowering of consumption and there is no saving at all for govt.
    How does this lower business and worker/consumer costs. How does it free up business to grow. It doesn't. It just reduces turnover.
    I am in favour of looking again at what govt does. But without first stimulating business and consumption by reducing the costs of rules and regs, there isn't the job creation and growth we need.

  • Comment number 84.

    • 65. At 2:47pm on 31 Aug 2010, John_from_Hendon wrote:

    They have not yet understood the reason for the recent economic collapse - over valued property driven up by an insane interest rate management regime just as the Bank was warned about. In a real sense until this coming and inevitable collapse works its way through the economy we can not recover - so it must do so - this is equally true in the USA (and Japan).

    We must both, as a Nation, and individually, live within our means (at rational long term interest rates!) This is the ONLY way out of this morass. There is no fiddle or quick fix.
    ..........
    Your close to the truth John, but need to take a further step. The reason for the collapse was not interest rates but the debt based monetary system. Its a little known fact that 97% of the money supply in the economy is debt backed, created by the commercial banks and charged with interest, and only 3% is provided interest free by the bank of England. To service this debt the banks must continually increase the money supply, at the same time eroding its value, and constantly increasing the amount of debt. This is the real reason for the crisis. There is a solution, its called monetary reform, and a debt free money supply, see http://www.bankofenglandact.co.uk/.

  • Comment number 85.

    76. At 3:50pm on 31 Aug 2010, John_from_Hendon wrote:
    The best thing is probably to save and manage your own savings - keep away from managed pension funds - that is what any rational study of their performance must conclude!


    I do agree John but you see what the banks are doing with Cash ISA's now so the buggers will still make it difficult for you even when you go your way.

    I think we do need a more individual entrepreneurial approach. Ok thats easier said than done but you would have to be mad to rely and Govt, Regulators, Pension funds and banks for a secure future. Lets encourage more self-reliance and ambition in our kids. They might surprise us.
    Unfortunately there will be many older victims of this mess for whom it is probably too late.

  • Comment number 86.

    Aren't pension funds run by the same group of banks and other super intellects as the rest of the financial sector. The people who work so hard and are so brilliant that they must be paid mega bonuses.

    The answer is to tax the bank profits and the bonuses and use them to top up the pension funds. Even if it's not enough to solve the pension problem, it's positively wrong not to do so.

  • Comment number 87.

    Plenty of debate as always...although I'm still amazed at two things off-topic. 1) How Sam_from_Hendon always gets a comment in so quickly and 2) How/why Sam_from_Hendon manages to lever in praise for low interest rates for eternity. Borrowed more than you can afford if rates rise Sam? The MPC won't read your comments here and decide that your support confirms they should remain steadfast with the low rate environment. You aren't convincing anyone.

  • Comment number 88.

    There is also a fundamental problem with the stock market. It was designed to raise capital so that companies could invest for the future, however most well established companies no longer need to raise capital from the markets as it is cheaply available else where. Therefore owning shares has become less of a "lending" investment and more of an "ownership" speculation. The tail is wagging the dog and so investing in a pension is purely speculative and the only winners are those managing them at a fixed fee whatever their performance. Also, the pensions are mostly managed by the very same banks that are lending companies capital and are advising them on take overs etc. There are many conflicts of interest. My advice is to stay well away from schemes set up and managed by people more clever than yourself.

  • Comment number 89.

    #82. At 4:10pm on 31 Aug 2010, Vicki Redman wrote:

    Fair Play John/Vicki, 43 years working for the same company is quite an achievement; and I'm sure you deserve a long and happy retirement. However, see my post at #75 ... Uncle Harold had a lot to do with creating the circumstances that allowed you to get to the situation you currently find yourself in. In reality, by plundering NI, he left the headache to someone else ... as he said, 'In the long run we shall all be dead...So do not let us bother too much as long as we do not spend too much for the next two or three years'. As usual, 'responsible government' does what it always does ... reaps the benefit today, at the expense of tomorrow. Unfortunately for those of us still working, tomorrow has just arrived.

  • Comment number 90.

    86. At 4:28pm on 31 Aug 2010, WolfiePeters wrote:
    Aren't pension funds run by the same group of banks and other super intellects as the rest of the financial sector. The people who work so hard and are so brilliant that they must be paid mega bonuses.

    The answer is to tax the bank profits and the bonuses and use them to top up the pension funds. Even if it's not enough to solve the pension problem, it's positively wrong not to do so.

    -------------------------------------------------------------------------

    No its one step better, its run by people who are able to predict when you will die and then sell you a product that will reward themselves handsomely if you die sooner, and will price in the possibility of your living longer. So your death is profitable for them.

    Oh, but its fair. Because you get a gauranteed income. I'd rather go to the grave with thousands in unsecured debt a la 'Scent of a woman style' thank you very much.

  • Comment number 91.

    I came across an interesting comment from a fairly senior pension exec.

    He said something along the following lines. "Just because a pension scheme is in deficit, it doesn't mean its broke. As long as it's funded (new payments coming in), it will continue to survive."

    So basically our retirement plans rely on the Ponzi scheme pulling in funds from our kids.

  • Comment number 92.

    It shows the price that everyone is having to pay, no matter how old, to ensure that the property bubble in the UK stays inflated come what may. Everything...savings, pensions, inflation targets, jobs and your public services are subsidiary to that end. 'Temporary Emergency Measures' soon cease to be temporary and become the norm. And a complex economic system, built up over many generations, and based just as much on savings and pensions as it was on home equity, is trashed. In this brave new world being formed for us by the politicians and bankers, only those who own property will see their money grow, and a quick look at the size of the banks mortgage books will tell you who owns most of the property in this country. What confounds me is that more people are not angered by this.

  • Comment number 93.

    Vacationing staycationing and a pension!
    I think I need a job at the beeb.

  • Comment number 94.

    The UK used to be the head of the or near the top of the ecominic league
    Unions demanded better pay and condition etc some of which was neccessary BUT in the last 13 years of exportation of the work abroad and the importation of people to perform work many refuse to do and also have a basic life stlye funded by the other workers along with the raid of pensions in 1998 has mushed a system that could just about cope with the problems over the edge.

    There is no free lunch and the UK economy haa been caught swimming with no trunks when the tide has gone out.

    It is going to take some strong leadership to explain and carry out what is required to turn the UK around

  • Comment number 95.

    81. At 4:06pm on 31 Aug 2010, Rugbyprof wrote:

    "I think many contributors are missing a fundamental point re pensions.
    ..Even if you were planning pension contributions no employee should ever have their contributions tied up with one firm either. The system for any long term saving ..... should be set up with the HMRC under your NI number. Ah well - may be a radical realisation ............."

    Good points Rugbyprof! We had a colonial past and in many countries we set up Provident Funds. This wasn't altruism, it was because we didn't want the Social Security millstone of looking after our colonial servants.

    However the long term effect of that is that some countries, notably Singapore, have a self funding Pension system, the Provident Fund, which now embraces more than just pensions.

    Why can't we set up such a system for our current workforce? It would need draconian legislation to keep Governments sticky fingers out of it but why not?

  • Comment number 96.

    And he back from Holiday.

    Well, its all been said and ignored before.

    Pension Funds have been exploited, by Pension holidays and by shortselling hedgefunds, etc.

    The wrecking of the Banks and robbery of their Shareholders likewise did the Pension Funds and others no good at all.

    Bradford and Bingley shareholders should have been compensated, grr!

    But this will all of course be ignored as usual, expediency over effectiveness, quick fix over common sense, as usual.

    I need to stop sitting in front of computers and work out more, the old muscles need a good stretch.

  • Comment number 97.

    If annuity rates are poor partly because interest rates are poor will the annuity improve immediately if interest rates improve? The interest rate environment in ten years time could be very different.

    Would I also be right in assuming that most pension scheme assets are invested in companies that devive much of their income abroad? I know that many pension schemes have funds that invest abroad but even those who invest mainly in FTSE100 companies are investing overseas because much of the activity of FTSE100 companies is overseas. So investment returns tend to be based on worldwide growth rates rather than UK economy ones.

    I except that is a bit of a simplification if only because it ignores exchange rates and the history of sterling over the last years is of slow depreciation.

  • Comment number 98.

    Re public service "gold plated pensions"; this debate continually lacks factual information, relying on inference and too often, prejudice. At the risk of being naive here are a few facts: I started teaching in 1968 on a salary of £753 and belonged to the Teachers Pension Scheme. In 1983 I joined the civil service on a salary of £12,000 per year, had to leave the Teachers Pension Scheme to join the Principal Civil Service Pension Scheme, retiring in April 2005.

    Throughout my 21 years in the civil service I had to pay an additional 4.25% each month to meet statutory of retirement at 60 I would have wished to carry on but was told in the spring of 2005, along with others this was not possible. I finished on a salary of £56,200 and collected a lump sum of £84,270.24 and a pension of £28,090.08 per year.

    Last week an anonymous contributor to the Treasury's‘Spending Challenge’ was reported that ‘a civil servant with 25 years experience, earning £40,000 could get up to 6.2 years salary - £248,000 (but quoted as “nearly £300,000”) on retirement?

    It good to read the comments of those far better informed than me on the background to the current situation but I do despair at the lack of material facts in some of the debate. We need a little more honesty in the debate and less ill-informed comment from some MPs and a few members of the electorate - and the odd journalist.

  • Comment number 99.

    Hmm, I don't see why this is news. Any one can see that annuity rates have been falling for a long time. How could it be otherwise with gilt yields also declining? What this boils down to (as usual) is that a lot of people haven't been thinking. They watched GB hit pensions in 1997 and reacted by spending all the money they had and some they didn't. Well, who's sorry now?

  • Comment number 100.

    "81. At 4:06pm on 31 Aug 2010, Rugbyprof wrote:

    I think many contributors are missing a fundamental point re pensions.

    Were they ever affordable as we know them? "

    Of course they are - but they have to be sensible. Practically there is no reason why the produce you make for the most productive years of your life 18 - 65 can produce enough to provide for your later years 65 - 100.

    The problems come with ever increasing inflation requiring the income to increase - requiring investment i.e. a pension fund. Plus a select few (both private and public) receiving more in their later years than they ever produced in their working ones.

    This means gambling in the stock market - which, thanks to inevitable booms and busts, means some do extremely well and others get nothing (a period we're about to enter now)

 

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