…………..The State Pension was Fully Funded and Index Linked

It’s a sobering thought but the ‘Old Age Pension’ will soon be celebrating its 100th birthday.  It is also a sobering thought that it is still being run and financed in the same incompetent, cheeseparing and cynically politically motivated manner that has prevailed since its birth, at the hands of David Lloyd George, in 1908. The fact that it is still financed out of current income instead of being fully funded is a glowing tribute to the incompetence, stupidity and wanton, bloody minded cowardice of a seemingly endless stream of Chancellors of the Exchequer. The current pension debacle is, very largely, the eventual and inevitable outcome of this same approach. In 1908  Labour Party MPs complained bitterly about the ‘means testing’ involved and now, 100 years on, Labour Party Chancellors are still introducing that same ‘means testing’ to that same useless system.  How little we have learned ! Not, I have to say, that the Labour party and its chancellors are, or have been, any better or worse in this respect than the chancellors of the various other parties who have from time to time been responsible.

It could be argued that I am covering two topics in one here – and that could well be the case. The problem is that, as the elderly found out during our one (so far) experiment with a female Prime Minister who, as one of her more brilliant ideas, abolished the index linking of this pension so soon after its eventual, and at that time very recent, introduction by John Major as one of the very few intelligent things done in his spell as chancellor, it is probably not possible to have the latter part of this section’s title without the earlier. However, it could all get worse; some would argue that it already is doing. Our 'caring' Members of Parliament have, in recent years, whilst keeping a firm damper on the State Pension for you and for me and pushing, with the much publicised disastrous results, for an increase in private pension provision at the expense of the state pension provision, very carefully arranged quite enormous increases in pension provision for themselves, feathering their own nests very nicely, for which you and I, in one way or another, will eventually have to pay. In my view, for what little that is worth, the current arrangements for MPs pensions are an affront to decency to the point of being downright obscene. If you want the details arrange a visit to your own MP and ask. You’re paying – you’ve a right to an answer. If you have access to a computer, of course, you can reference the internet.

The most secure form of pension, unburdened as it is by profit taking by the provider, is undoubtedly the State Pension. I agree that this assertion is, of course,  based on the flawed  assumption that such a system is run competently – which of course it isn’t. Very little, if anything, in the way of commercial enterprise has ever been run competently by politicians, which makes you wonder why we continue to believe that they are competent to run the country. This could be a rectifiable problem but, instead, the current political aim is to increase pensioner's income from the risky, profit dominated, private sector to 60% from the present 40%.. This is what the politicians call the right combination of state and private pensions but without state pay-as-you-go pension domination. I’m sorry but I beg to differ.

The government sponsored report by former banker, Ron Sandler, concentrated on private pensions. Sandler accepted that the private pensions industry is suffering a massive loss of public confidence triggered by mis-selling scandals involving billions of pounds of saver's money. This reached its climax with the near collapse of Equitable Life resulting in an ongoing struggle by savers to rescue what they could of their future pensions from the company. The world-wide collapse of share markets in recent years have given pensioners little confidence in pensions based on them. Markets have suffered, in part, because of the Enron, WorldCom and Xerox scandals, amongst others, and also because of growing fears of a world trade recession. From the days of Maxwell on, companies such as Enron have shown utter contempt for their employees and plundered pension funds at will.

Many companies did extremely well from their pension funds when the markets were going up and up. They had surpluses and pension scheme holidays and signally failed to make any provision for riding out the rough which would inevitably follow the smooth." There was an article in the business section of The Times on 3rd. August 2002. which stated  "the UK pensions industry is facing an unprecedented crisis."  The crisis is most profound amongst half of the top companies in the FTSE 100. “Companies with the biggest deficits are BT with a £1.8 billion shortfall, HSBC with £1.2 billion and ICI with £499 million." The situation is still ‘fluid’.In fact, at the IAPF pensions conference in Dublin in Sept 2005 Mr Charlie McCreevy, European Commissioner for Internal Market & Services told the conference that there is a pensions time bomb "ready to explode some time after 2010". As the man said, in those immortal words, “Houston, we have a problem” !

Frits Bolkestein, for several years subsequent to 2000 the Internal Market Commissioner of the European Commission, has said that people increasingly want to control their own financial future and manage their own savings but he has failed to explain how savings in personal pension schemes will achieve this. It is a con. trick to use pension funds to take investment risks that Big Business itself refuses to take. The EU wants institutional investors to link pension savings to the real economy and place some of their portfolio in risk-capital to assist the creation and expansion of small and medium size businesses. If this is such a good idea let Big Businesses put their own funds in risk-capital, not gamble with hard-earned pensioner's savings.

Confronted with a major problem that might expose their incompetence the politician’s first instinct is, if at all possible, to wave the white flag and run - preferably leaving behind someone else to take the flak. Recent history is full of examples of their getting out from under and passing the blame to someone else. I’ll not bore you with a list of such – in the unlikely event that you have been paying attention to what goes on around you you will already know. The current EU pension scheme proposals claim Member States can decide the extent to which they rely on state pensions such as Pay-As-You-Go systems, or encourage pension schemes, but in reality attack state pensions. The Maastricht Treaty limits on government borrowing and debt coupled with the EU policy of low Big Business taxes almost inevitably mean state pensions will either be phased out or maintained at the lowest level people are prepared to tolerate. MP James Arbuthnot said in Parliament's July 2002 pensions debate: “Most people think there will be no retirement state pension by the time they retire". The way things are shaping up ‘most people’ could probably be right.

The situation is not helped, of course, by the fact that people in the EU are living longer and fewer people are of working age to support them.  Across Europe the current level of unemployment (at the time of writing there are four million unemployed in Germany alone) only makes matters worse.  It is a fact of life that problems and solutions come in pairs – the clever part of the trick is matching the one to the other! The painful part derives from the fact that it has all been left much too long and, let’s be quite blunt about it, this has not been for purely financial reasons it has been primarily for reasons of political cowardice. Let us consider just what we want from a state pension scheme and then consider how best, in the long term, to set about achieving it. In passing we can also specifically exclude the unnecessary to avoid arguments later.

Any state pension, at the time at which it is being paid, must be linked to the then current earnings. We are the world's fourth richest country; if we cannot afford this most secure form of pension then it is very much a case of God help the rest. The level of the pension should be set at the Minimum Income Guarantee (MIG) level which would give a reasonable pension and one that could increase with earnings as in fact the MIG has done since 2000. On this system the pension would keep pace – not, as now, always lagging behind the times with late retrospective increases. SERPS should be retained as a secondary, top up, pension. That is it. No inflated, inflation proof, link to final salary – that smacks of greed and is, in any case, financially unrealistic. At retirement the mortgage should have been paid off, there are no more of all of those expenses associated with going to work. Many other expenses are reduced. The state pension is not designed to necessarily keep you in the manner to which you have become accustomed. It should be there to provide a decent standard of comfortable living in retirement. If you want more than that then, as now, you plan in advance and you contribute to it - but even here there have got to be some changes. This is not the forum to discuss private pensions, however, as we are exclusively considering the basic state pension, but it is worth noting that the state could equally well run ‘private’ add on pensions on a commercial basis. They would at least be as safe as it’s reasonably possible to get

Just in passing, three of the so called great offices of state carry an index linked pension. These are (i) The Lord Chancellor  (ii) The Prime Minister  (iii) The Speaker. I have to ask just what any of the holders of these offices have actually done, other than satisfy their own personal lust for power and enjoying a very good living at our expense, to specifically enjoy this luxury that is denied to the rest of us – by them, amongst others. If you are sufficiently interested in the current figures for these pensions, for which you are paying, look them up on the internet – they will truly make you want to vomit. They know that they can get away with it because you, on the whole, are too bone idle, and far too stupid, to do anything about it.

No pension provision system can survive unless it is properly funded. This is not 20:20 vision brought about with hindsight. It was as obvious in 1908, and even more so in 1945, as it is now. The problem then, as now, is that politicians want instant results to gratify there egos and to convince the electorate that they are as great as they say they are. Since they are rarely around to answer for the consequences of their unerring stupidity, and when they are no one bothers to require them to so answer, then they quite reasonably give little consideration to the long term effects of pretty well anything that they do. If we are all that stupid – why should they ?  The wonder is that the present system has lasted as long as it has. However, to be honest, it could very easily continue to survive.

The current funding problem in this country, as opposed to the rest of Europe where, as we have seen, unemployment rears its ugly head, is consequent upon an ageing population outnumbering the workforce. It is postulated that this state of affairs is set to continue and develop. I would like to suggest that there is no guarantee of this. Although our current system is inherently wrong it is more than possible that, although our predecessors could not have foretold that it would be brought to its knees by our present longevity, such longevity is in fact only a temporary glitch. With the present trend toward gluttony, obesity, intolerance to exercise and drug dependency that is currently afflicting our society it is more than probable that the problem, in its present form will go away on its own as life expectancy starts to fall. This vision we have of ever longer life could be, as a result of our own stupidity, just as illusory as all of the other nirvanas we have missed down the ages. It would not, however, be a good idea to rely on this solution to maintain a system which is, as we have seen, inherently flawed anyway.

A number of factors are blatantly obvious. (i) A transition from pay-as-you-go to fully funded cannot be achieved overnight. The whole operation will have to be spread - probably over two full parliaments at least. (ii) It is going to be expensive. It will be expensive on two fronts (a) the taxpayer is going to have to contribute a bit more and (b) our elected representatives are going to have to forgo their greatest pleasure – needlessly spending our money - for however long it takes. (iii) Once done we will have the finest pension system in the world. We have a Treasury, which I have always regarded as totally useless at anything other than spending other people’s money on the one hand and saying ‘no’ on the other. It will be an interesting test of their competence to see if they can pull this off at minimum cost and interference to pensioners present and oncoming. Don’t hold your breath - but we can always hope.

Roger Lyons, the then joint general secretary of the trades union Amicus once said: "Pensions are the biggest issue for employees today, not pay and not conditions, for the first time in more than 30 years." Although I hate to admit it - he could just have been right!  This remark, however, well illustrates just how selfish, self centred and uncaring of the plight of pensioners his members, and, indeed, the workforce in general, have been for the last 30 years. As is usual with the human species - they don’t wake up until it hits them, by which time it's usually too late!