Saturday, March 25

Pensions and crisis

So there is a crisis in Pensions and our Governmint (they govern and it costs us a mint) is seeking public consultation about what to do about things. The 85,000 people whose self funded pensions have simply disappeared are another factor in the “consultation”. I wonder if I held you up at knife point and robbed you of £5, you would want me prosecuted. If I rob you of your life savings from a pension fund, well, that’s just one of those things and nothing to be done.

Usually with the Governmint, they are careful to pitch things so that the result will be as they intended. It was a bit careless of them to ask an independent Ombudsman to produce a report that they did not have any control over, or at least set the terms of reference to produce the “correct” result. For instance, they could have asked the Ombudsman if the method of determining the pension amount paid to people is being correctly administered and fair. If the framework was couched in those terms, then the Ombudsman would have been severely limited in what she could have reported and the overall report would have said, in essence, there is nothing fundamentally wrong with the present system of paying pensions. No doubt the headlines in the newspapers would have reported the synopsis as “Pension payments OK”.

So I was a bit surprised when the report was so damning and I enjoyed seeing the politicians squirm and try to discredit both the report and the Ombudsman.

Taking a step back from the pensions question, it is a microcosm of the relationship between the Government and the population who more and more taking on the mindset and reverting to the rights of pre-medieval serfs. Let me explain and illustrate that by examples.

One of the concepts being bandied about by the various commentators just before the Budget was “How much will Mr Brown give away ……..” Think hard about that statement – it is based on the concept that the money BELONGS to the Government and it is in their gift to give it away, similar to an uncle kindly giving his nieces and nephews an unexpected top up to their pocket money. Similarly the begrudging increases in “Allowances” – how kind that the Government will allow us to keep the cash that we have earned and paid tax on (such as capital gains tax on house sales, inheritance tax etc.). Take a look at this article which sets out an alternative to the unrepresentative Parliamentary system.

In other words, instead of the Government being the servant of the people and responding to what the vast majority of the population wants and actually representing their constituents, it is the other way around. Parliament dictates to the country and arrogantly disregards the wishes of people. I wonder if people actually stop and think about the generosity of the Government and how the politicians behave when promising vast sums in no strings attached grants and aid to overseas countries for example. For a glimpse of the uselessness, and indeed the harm done by this gesture politics, look at and then tell me if pouring more money into sub Saharan Africa will do any good. If you think that money should be poured in and the corruption and waste should be ignored on the basis that if only 10% reaches the people concerned it would do SOME good then you won’t appreciate the rest of this article. Would you run your own finances in this way? Would you go to a filling station with a leaky fuel container and carry the petrol back home and be happy if only 1/10th of the amount was left to pour into the car? Indeed, the Government could speed up the flow of “aid” by paying 90% of the aid directly into the numbered Swiss bank accounts of the dictators of the countries concerned. Much more efficient and less trouble to the ultimate recipients than the present system.

The pension crisis is, to my way of thinking, very similar to the leaky petrol can analogy and is again a compact illustration of how the Government exists to perpetuate the Government. It bears little relation to serving the serfs and the population who are being handled like sheep or cattle and being shorn and milked for the sole benefit of the Government. The contradictions and pig headed method of paying out the amounts is incomprehensible to me. I honestly believe that if an inhabitant of the Andromeda Galaxy landed and set out to study the system, he, she or it (I don’t know the sexual system in place there so that should cover it) would conclude that the system is there to employ Civil Servants. Let me explain …

If you work, unless you are working very much part time and earning a VERY low salary, you will pay tax. So the Inland Revenue (not exactly noted as being a paragon of efficiency and frugality) will record the fact. I’m not sure exactly how many people are employed by the Inland Revenue but I’m willing to bet it isn’t in the hundreds.

Similarly you will pay National Insurance contributions of some sort (even if it is a “credit” to say that you aren’t paying anything). Note that there is another Army of Civil Servants administering this recording system.

Did you notice that there are, in essence, at least two parallel systems recording the fact that you are working and contributing to the funds? If the system was rationalised and only one lot of recording was done, then a number of Civil Servants could be eliminated. Two benefits would flow from this – their wages, pensions (guaranteed and gold plated) along with the other costs (offices, computers, heating bills etc.) would not have to be paid from the funds. Secondly they could take jobs in outside or (Shock! Horror!) PRIVATE industry. In short they would be earning money and become contributors to the system rather than an expense. It seems this concept is a particularly difficult one for many people to understand – particularly civil servants and local government officers who claim that they also pay taxes. Imagine giving your child pocket money and then “taxing” them on the amount and withholding a percentage. Could the child claim that they were “contributing” to the household expenses? Apply that analogy to the Government handing out their pay and then taking some of it back …

Similarly, when it comes to paying out the pensions there are multiple parallel systems duplicating the effort again and again. The state pension has always been just under the poverty threshold so even if you have a full contribution record, then you will still be officially in poverty. If you have had periods of unemployment and gaps in the record, then (and here is an expression which makes me smile at the ludicrousness of it all) TO BE FAIR, you can’t have a full pension. No problem – you apply for the various income support benefits to top up your pension to an acceptable level and you are certain to get this, even if you have not worked a single day since leaving school.

But wait! There are other benefits which will be available to you such as housing benefits (after all it would not be FAIR to simply pay a flat rate if you live in a different sized house, a council or private landlord house or some other arbitrary and essentially minor difference in the type of accommodation you occupy), council tax rebates and as many other benefits available as you can think up. A visit to your local citizens advice bureau will appraise you of what you can claim.

Naturally, you can’t get these additional benefits if you were stupid enough to work, save and generally behave like a free man (or woman – in general I’d say women can be more astute when it comes to handling and managing cash than many men) and not a slave, serf or inhabitant of a Marxist-Leninist or Maoist totalitarian state. All such benefits must be means tested. And Mr. Brown, being from all appearances and behaviour a committed Marxist-Leninist, is firmly committed to the principle of means tested benefits. If you have had the misfortune to be presented with one of these forms (I have helped five people with them and they are tiresome, badly designed and intrusive in the extreme) you may be tempted to wonder at the complexity, pettiness and outright vindictiveness of the legislation which necessitates them. More importantly, the manual checking and bureaucracy needed to process them makes you wonder just how much it costs.

Again, if this army of bureaucrats was eliminated, then the costs which must come from taxation and other sources of funding (e.g. NI Contributions) could be spent on paying pensions. I could look it up but there are several newspaper, websites and other sources which state that overall, in the UK one out of every four people work for the Government. In parts of Scotland this rises to three out of four (this last statistic from the Scotsman newspaper – hardly an anti Scottish viewpoint). You see what I mean about the hypothetical Andromedan concluding that the system is there to employ civil servants and a side effect of the process is pension payments?

Suppose that each civil servant earns on average £21,000 per year. According to various sources, there are 7 million people working for the Government in one form or another. Multipy this up and see what your calculator says ... As usual, feel free to put in any figure you feel appropriate to work through the example. Add to this an unspecified amount for the infrastructure to support them (costs of buildings, equipment, computers, pensions - again! – sick and statutory maternity pay etc. etc. ad infinitum). Could I say a conservative estimate to keep an average civil servant in post (there’s an insider expression) would be £30,000 minimum? That means that for each person working in industry, a minimum of £10,000 in taxes of various sorts must be extorted from each person. How much do YOU earn? If you aren’t paying your £10,000 in taxes of one form or the other, then the cash must be made up from somewhere such as taxes on company profits which in turn affect profitability and cash available to you for your pension fund.

In fact Gordon Brown is taxing pension funds to the tune of 5 billion (that is £5,000,000,000) a year to keep government spending on track.

If he asked me what needed to be done to address the pensions crisis my solution would be simple – the tax office keeps records of taxes for 7 years. If you have worked for (say) 5 years out of the 7 years before you retire or (say) 15 years in total and have paid tax, you will receive a flat rate pension. Eliminate the multiple parallel methods of revenue collection and the myriad parallel means tested payments that are available and stuff the concept of “fairness”. With the savings and cost cutting of the bureaucracy I’m willing to bet that the basic flat rat pension will be a handsome sum. There would not be any need to raise the retirement age and the tax revenues from the ex-civil servants doing productive work would be a benefit, not a drain on the incoming cash.

This system would also have the effect of getting the Chavs off their backsides. If they were going to exist on benefits and not do a single days work for their entire lives, then they would fall foul of the “have not paid tax for a total of 15 years” rule and would have to do something to address the situation.

In the interim two measures need to be taken – one is to safeguard those who are genuinely NOT able to work. I truly believe that many people on incapacity benefit nowadays could do some useful work. For example they could work in call centres or do what I do as part of my duties and operate a CAD package on a computer or any other computer related work according to their intelligence and abilities. This activity does not need physical strength or mobility. At least an effort along those lines would not be intolerable. However, I appreciate that either through accidental injury or other factors, someone may not be able to undertake even those limited sorts of duties so should be safeguarded.

Secondly for those 85,000 people whose pensions and life savings have “disappeared” – and I think criminal prosecutions need to be taken against the perpetrators – I believe this Government could compensate them adequately without breaking the bank. The government clearly allowed the various pension providers, employers and others in the industry to take exorbitant amounts in charges for extremely poor service, to avoid paying the sums committed and to mismanage the funds without accountability. Many of these people are fairly low paid individuals and although the collective millions of pounds of their pensions is a sizeable sum, in individual terms, the amount they have lost is unlikely to exceed £250,000. If the government gave them a lump sum of £250,000 to replace this then the total bill would be £21.25 Billion (£21,250,000,000). Or the value of about 4 years of Gordon Browns raids on the pension funds of the rest of us. If the demonstrable value of the lost pension funds is available then paying the amount “lost” would be probably a lot cheaper than having to pay the state pension plus the various top ups plus the almighty administration costs. But this may be perceived as not being “fair”

It seems that the present system doesn’t mind being crap as long as EVERYONE gets the same crap service and payment. That is “fair”, isn’t it?