PENSIONS – UNAFFORDABLE, UNSUSTANABLE AND UNFAIR

⏱ 8 min read

Is the prospect of older age appealing if it involves poverty and poor health, years largely spent in a room with a TV or the future’s equivalent which may be a bundle of AI generated virtual experiences, a metaverse of life, maybe with increasing reliance on a carer, whether human or robotic? Perhaps a number of people would say that is not a retirement they dream of. Should perhaps society have a shared vision of what a good old age should look like, perhaps where people are reasonably self-sufficient in money terms, can take responsibility for themselves, and so they are reasonably healthy, and enjoy reasonable longevity. In itself, perhaps longevity  has little merit unless there is a quality to life. The vision then would influence policy applicable through a human life cycle to meet the goals.

TODAY’S OUTLOOK

Bare facts today need appreciation.

• In the UK over 65s are now 20% of the population, and In a matter of decades that will be 1 in 3.

• The full state pension is around £12,000 and many do not qualify for that full amount. State pensions are not pre- funded and so have to be paid out of each year’s tax receipts.

• To keep the population balanced each woman needs to bear 2+ children, but the current rate is nearer one: and so a growing pension age population will have to be funded by a shrinking taxpayer community.

• £1,000,000 of savings will realise an income of say £40,000 per year. The average adult’s savings are under £7,000 and the average for over 50s is about £20,000 before pensions. According to experts, a person needs about £30,000 a year to enjoy a moderate standard of living in old age.

• The public sector pension provisions, unfunded but financed by current taxpayers, are very generous, gold-plated some say, and growing.

• The national health cost of under 45s is say £2,000 a year, and for an over 85 it is £13,000, and it is reported in the Guardian that over 65s account for 40% of the NHS budget which is over £200 billion.

• The British population has become increasingly unhealthy as fast food and drink and ultra processed foods dominate. The obesity and other medical problems are growing across age groups. 

• Social care for the elderly is unfunded too, and its quality highly variable. As things stand will not elderly care sap more and more cash from local authority budgets which are overstretched.

• Politicians of all main parties deceive the public for their votes promising a triple lock for pensions which is unaffordable and unrealistic. It has to stop.

UNAFFORDABLE PUBLIC SECTOR FUNDED BY A SQUEEZED PRIVATE SECTOR

The public sector is patently bloated and overall poor in productivity. It and the employment benefits employees enjoy depend entirely on tax receipts, that is almost entirely the hard work of the private sector. Public sector pensions are considerably better and more secure than private sector. Take the NHS as an example. Recent reports say that over 3,000 NHS retirees have pensions of over £100,000 per year, which are inflation linked. Apparently over 47,000 have £50,000 or more. NHS pensions cost over £12 billion each year and some 2,000,000 employees are currently in line to join the schemes, all inflation protected. The highest paid consultants pay in 12.5% of salary, but for a £100,000 pension over £3million of investments would be needed in the private sector, ignoring inflation protection. And these pensions are all financed by the current taxpayer.

Of course, people in work in the private sector pay into pension plans, primarily direct contribution schemes, which are simply investments, with limited tax relief. The defined benefit schemes of the past, which paid a proportion of final salary, are closed and in run off. And so, the number of employees retiring without such benefits, which promised a secure and comfortable retirement, is reducing all the time. 

Pensioners are getting poorer. Given the cost of living, and taxes ever growing, the amount the average employee in the private sector will save for pension is likely to fall way short of the amount for a good retirement. The Government is squeezing private pension contributions harder than public sector in order to pay for a fat public sector. The way Government clearly prefers the public sector to the private is a real barrier to growth. The public sector pension commitment will be a growing unaffordable drain rarely even talked about and certainly never addressed.

HEALTH AND WEALTH

Technological and biological advances will, in due course, most likely provide treatments or preventative medicine for a lot of serious, debilitating and fatal ailments. Other as yet unknown illnesses, such as in the Covid pandemic, will no doubt appear. But in the round it is reasonable to anticipate an ability for healthcare to keep people alive longer. That is not to guarantee quality of life. If that quality depends on health and if health care costs for the aged are to be contained, does it not make more sense for societies to improve drastically the heath of their citizens of all ages: also, people who are reasonably well are more productive leading to economic growth. In the UK the authorities have barely begun to deal with the biggest health harmer of all – the bad dietary choices of adults and also parents for their children.

This is well exemplified by a recent Panorama documentary on mass produced foods for young children. It demonstrates conclusively that most brands of highly popular fruit and vegetable and savoury pouches are not healthy at all but really harmful to children. In many brands a single pouch includes more sugar than the daily recommended maximum.  Marketing implies at least that they are good for children, there are no health warnings and so the public are being lied to.  Current inaction means we are baking into the system people addicted to bad food, and so medical treatment dependency.

This problem pervades UPFs and a great deal of foods and drinks which people are choosing to consume. Successive Governments pussyfoot around the issue, citing often nanny state if the regulation bears down on the food industry. That industry has shown a complete disregard, or even recklessness, for British health. Surely, by tackling this problem, Government could without increasing its costs and through tax on bad food, as with cigarettes, even raise money to reduce tax elsewhere.

Unless British people start to get healthier from an early age, their time as pensioners will be poorer and maybe quite miserable.

PENSION SOLUTIONS

The right pension plans and structures and how to finance them properly long term are not within this article’s scope or competence. But it is clear that the UK unfunded State pension system was designed for retirements of say 5 to 10 years, as 70 was considered a good long life. Today and tomorrow, a growing number of people will expect to and will live say to 100 or 120 years in all likelihood. For most people therefore work will go on long after 65, or else they will surely be poor. 

The State pension system guarantees now a pretty low standard of living and the triple lock is unsustainable. The public sector pension system is unsustainable and unaffordable. Why not bring it in line with the private sector, that is contribution pension schemes which fund pensions payable, with no burden on the taxpayer for the time being. Or is that against Labour Government dogma or will Unions prevent the change?

The Government needs to address, in brutal fashion, a food and drink industry which is destroying the quality of life for so many, and educate the public into better food choices, lifestyle generally and health self-help. At the moment baby steps on sugar taxes help but are not waging war on killer foods.

People need to save more and so need more incentives to do so.

Perhaps also the public sector could be radically reduced by outsourcing many significant functions to the private sector, transferring relevant employees into new roles. The public sector pension bill will come down and efficiencies are more likely and can be incentivised in the private sector.

The much talked about era of a high earning populace is nowhere in sight but is necessary to support expectations of a long and pleasant old age. British people need the skills and the education to be able to deliver products and services that are well paid for. Education is again key to the future, even pensions!

Of the greatest import is surely a much bigger national debate with honesty and transparency as to how to develop a pension sector which meets an ageing population’s needs, and is affordable and fair across all sectors.  The combination of brilliant people in finance and technology today, as well as other experts, surely can come up with something.