Rescuing
Democracy in the United Kingdom from our current Elected
Dictatorship
|
Spin, not
face-to-face confrontations with the voters, is the Government's
chosen method of communication. Ordinary
people are dangerous. Ordinary people might ask a question
which throws a politician 'off message'; the Cabinet member
might reveal himself or herself to be a human being like
us, and not a programmed android. Worse still, he or she
might tell the truth.
Ann Leslie - Daily Mail, September
16, 2004
|
Why
Pension Credit 'can't be sustained'
Admission
of a (pensions) crisis ignored for far too long
By
Alex Brummer, City Editor, Daily Mail, May 17, 2005
The
effort by big insurers to switch clients out of private pension
plans back into the state sector is an admission of the perilous
condition of the nation's system of provision for the retired.
It under-lines how David Blunkett, the new Work and Pensions Secretary,
has been handed one of the most sensitive and complex issues facing
Labour in its third term.
The
goal of successive governments has been to remove much of the
burden of future retirement provision from the public sector and
place it in the hands of private providers such as big insurers.
But a series of disastrous mistakes and miscalculations has undermined
this strategy.
Poor
investment performance, the result of weaker than expected stock
markets, is the main factor behind failure of private pensions
to deliver for many individuals who bought into private plans.
The
situation has been made worse by Gordon Brown's £5 billion
a year tax raid on the dividends paid into pension funds imposed
in his first Budget soon after winning office (in 1997). This
both reduced income flowing into pension schemes and made investment
in stocks and shares less attractive.
The
plans have been further undermined by the failure of the actuaries,
who calculate the likely returns of pension funds, to take full
account of the increasing longevity of retired people. This has
added billions of pounds to the cost of private provision. Confidence
in private funds was also damaged when millions in well-funded
public pension plans, such as teachers and nurses, were mis-sold
private plans. To encourage people to switch out of the sate Earnings
Related Pension Scheme the government has been paying a subsidy,
currently estimated at £11 billion a year, to those who
have decided to take the private route.
The
effect of this 'contracting out' to private schemes is to reduce
the tax income the Government receives from National Insurance
payments over the short term, but to ease the burden on public
finances over the long haul.
The
decision by big insurers to recommend that tens of thousands of
individuals switch back into the state sector, because the returns
there now look better, flies n the face of Government efforts
to switch the burden of pension provision to private financial
institutions. As a result, a public sector already struggling
to meet future pension liabilities for its own employees now has
the additional burden of dealing with people who are falling back
on the state.
Indeed,
a series of decisions made by Labour since coming into office
has made private pensions saving unattractive. In particular,
the introduction of an over-generous, over-complicated means-tested
pensions credit system has served as a disincentive for people
to make their private pension arrangements. The pension industry
calculates that anyone earning under £30,000 a year might
as well not save directly and let the state pay up through means-tested
benefits. Pensions Commission headed by former CBI chief Adair
Turner is questioning the whole system.
Experts
believe that the £11 billion the Government is currently
using to support private pensions could be better deployed in
the state sector through improved earnings-related second pensions,
or by introducing a higher pension for all citizens linked to
earnings.
Until
now there has been precious little urgency in dealing with these
complicated issues. Indeed, during the election campaign there
were hints from adviser close to the Chancellor that this was
a matter for beyond Labour's third term. By switching some of
their clients back to the state system, the big insurers are,
in effect, forcing the Government to face a retirement crisis
which becomes more acute with every passing day. It is not before
time.
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