By Derek Bateman
What's going to happen to your pension, the Unionists like to ask. It's a very good question and they've managed to spin it relentlessly to frighten pensioners into thinking Scotland couldn't afford to pay its way.
Like so much else in this debate, the case is built on a myth. It pre-supposes that Britain's current arrangements are rock-solid and sustainable…carried aloft on David Cameron's broad shoulders.
Reform Scotland's report this week is the latest to demonstrate just how threadbare the Unionist case is and how reckless they have been with the wealth of the nation. There is a welter of evidence now that Britain's pension provision is an elaborate Ponzi scheme heading for its day of denouement.
The truth is that there is no mammoth national pension pot earning interest through judicious investments in order to pay out to retired public sector workers and the general population of old age pensioners. As Reform says, 'today's national insurance contributions and employee contributions almost entirely pay for today's pensioners. They are not going to a personal pot for the employee who's paying them.
Politicians have been engaged in a conspiracy of silence on this issue and they must now begin to be more open about the situation in which we find ourselves. People deserve to know where their money is going and what their future prospects are.' Well, here's a clue. The Intergenertional Foundation asked 50 economists what they thought would happen to British pensions.
Under the title Can the UK Afford to Pay off Pensions, it says that on top of its sovereign debt now reaching £1.3 trillion, the UK also has far greater liabilities to public sector retirees and general OAPs amounting to nearly £5 trillion (£1.2 for the state workers fund and £3.84 tr for OAPs). That is the ongoing cost of paying our non-private pensions which will have to be met by today's and future generations.
Of the public sector pensions bill, it says, only 25 per cent (of the £1.2tr) is funded. So that the government has reserves amounting to only a quarter of the amount needed to service the pensions, leaving the rest, three-quarters to come from current revenue – tax receipts and National Insurance.
For the much larger amount needed to pay for the state pension – the £3.84 tr – there are no reserves at all…no savings, no investments accuring interest, nothing but taxes paid today by you and me which should be used for current spending. Pension costs should be met from historic savings built up over decades of National Insurance payments and government investments, including a fund using our own North Sea oil. During periods of plenty, when Thatcher had the oil and Brown had the housing boom, exceptional receipts should have been saved for the benefit of the nation.
Instead Britain, now telling us they know best and have the clout to carry the economy that we don't have, simply spent it, much of it on lowering taxes. They have left a generational burden on young people today and their children and their children's children to pay for the benefits we get now. Meanwhile, as they get the bill for us, they will be unable to put enough away for themselves. Clever, eh?
'It seems reasonable to ask whether this is feasible, especially in light of Britain's worsening demographic outlook as the population ages', says the Foundation in an uncomfortable reminder for Better Together of the reality of bankrupt Britain.
So the foundation asked the economists two questions. 'According to the ONS, Britain currently has £1.2 trillion worth of public-sector pension liabilities, three-quarters of which are unfunded. 1 What do you think is the likelihood that these will all be paid in full?
In Britain the state pension is currently paid regardless of other income and assets. However, in some other countries (including Australia) it is means-tested. 2 Do you think means-testing of the state pension is likely to be introduced before 2040?
The answers were 36 of the 50 respondents (75%) said they thought that the UK's public-sector pension liabilities would not be paid in full.
Almost half (46%) of the respondents said that they thought the basic state pension would have become means-tested by 2040.
Does that sound like a solid base to guarantee your pension? If you area pensioner Don't Know worried about your income after independence, shouldn't you think hard about what will happen without independence. Remember, the Unionists are promising another £25 billion of cuts to spending.
Here are some quotes from the economic experts.
The likelihood that these liabilities will be paid in full is as close to zero as statistics allow. In fact, the ONS data don't really tell half the story. To illustrate, in order to finance existing- law pension, healthcare and long-term care commitments for the next 50 years, the government would need to have nearly 4.5 times the current value of GDP in the bank, earning interest that's reinvested each year. This is simply to recognise the enormous funding that our demographic transition will require, and that the burden rises every year corrective actions are deferred. The only way the nation can restore some semblance of budgetary stability, and meet (restructured) obligations is via some combination of social programme reforms to limit the rise in costs, tax increases, and higher economic growth, derived from faster growth in productivity.'
Effective default through cutting benefits, means testing, higher tax, restricted eligibility etc is certain.
The next financial crisis will be a pension crisis
Lower proportions of current 20-year-olds supporting a larger number of pensioners means that unfunded benefits will have to be met through rises in taxes. This will not be tolerated by a generation that has already been disadvantaged by the generation above.
Using a more robust discount rate, these liabilities are far greater than £1.2 trillion. Despite the perceived strength of the covenant, there is a strong possibility that these will not be paid in full someway down the line.
There is a near zero risk of a UK sovereign debt default – say 5% to 10%. However, it is more likely that there will be a covert default engineered via high inflation, as in the 1970s. Current UK fiscal policy is not sustainable. Taxes are at their feasible limit, and spending commitments cannot be met.
Not quite the Better Together/George Osborne mantra, is it? Remember too that Gordon Brown slashed British private pensions by removing £5bn a year from our pension funds, now amounting to £100bn. According to Brewin Dolphin a 40 year old man planning to retire in 25 years making monthly contributions of £250 to add to his current £60,000 pension pot will eventually lose more than £120,000 on the final value. He'd have to work an extra two years into old age to make this up. Gordon is now Better Together's pensions expert.
Meanwhile I'm not sure we could do much worse than the scandalously reckless and incompetent Whitehall regime that leaves us with one of the lowest pensions in Europe. Here's is Business Scotland's proposal – to collectivise into one “super fund” all the occupational pension schemes which have members who are employed in Scotland This includes private and public sector schemes as well as defined benefit and defined contributions schemes.
The fund will be the source of pension payments to Scotland's citizens when they retire. Benefits will be based on earnings, so the scheme will be of a defined benefits character for all. The scheme will cover all citizens whether they are currently in a pension scheme or not.
The fund will be invested to support a fairer, greener and environmental sustainable economy
The fund will be managed by a National Board of Trustees whose responsibilities will be to protect the long-term viability and financial sustainability of the fund.
And since we can put off the day when retirement age has to go up, we can give an immediate rise to pensions on independence. This is based on evidence that Scots die younger than the UK average so are penalised by getting their pension later – a stark actuarial and demographic fact that caused mock amazement from Johann Lamont on STV – the woman whose party is responsible for those early deaths by representing areas like Calton for decades at every level of government without an anti poverty programme and who still believes the Union, bankrupt and mendacious in its pensions policy, is to the way to prosperity in old age. Over 60 per cent of Scots polled disagreed.
Courtesy of Derek Bateman