Tuesday, 23 June 2009
Social security - when does the system go bust
When I see clips like this from Marketwatch, it reminds me how much more sophisticated the policy debate is in the United States. This clip examines the likely date when the US social security system drifts into the red.
Here in the UK, the vast majority of people are blissfully unaware of the rapidly approaching pensions crisis.
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Who here in Britain seriously thinks they are going to get a pension?
The Yanks get overly excited about 'Social security going in to the red', it's all smoke and mirrors and accounting tomfoolery.
Fact is, they have total tax revenues of X, of which a small part Y is sold to the gullible public as social security contributions and out of total government spending a small part Z is actual welfare and pensions. Whether Y is smaller than or greater than Z is neither here nor there.
It's the same in the UK. State pension and old age related benefits amount to +-5% of GDP, and if you took all the bits and pieces and divvied it out between all UK residents aged 65+, it would pay for Citizen's Pensions of about £150 per week each (£300 for couples).
So I refuse to panic about this - it's just all the complications and means-testing that stink.
As to employer and private pensions, anybody who is stupid enough to entrust their money to these shysters is beyond help. Sure, politicians are shysters as well, but unlike insurance companies, the government:
a) is subject to some sort of democratic control and
b) cannot go bankrupt.
I agree with Mark's thrust - American discussion of Social Security is almost always absurdly naive. It's as if they've never absorbed the lesson taught to Brits by (I think) Nye Bevan: "The secret of the National Insurance Fund is that there is no fund".
At last, Mark posts something I broadly agree with.
There is an important thing that a bold British Government could consider. Abolish the tax reliefs on pension saving on the way in, but don't tax the pensioners at the other end. To my mind, the tax reliefs subsidise a bloated financial services industry, which distorts the market for savings. The taxation in later life discourages saving, because it is common knowledge the state will means test you for being dumb enough to save.
And the tax threshold for people who continue to work past 65 should be massively increased. I know a chap who is taxed out of his entire state pension. Thats theft. He paid the contributions in.
When I see posts like this from UK Bubble, it reminds me how much more sophisticated the policy debate is in the UK.
Here in the US, the vast majority of people are blissfully unaware of the rapidly approaching pensions crisis.
:)
I'm sure there are smart people on both sides of the Atlantic, but this clip is not indicative of the majority.
The problem is that as more people over fity five stay in work ,less young people get employed .
Ultimately pensions fall when the input fails to match the outlay.
Rejoicing at the insolvency is delayed is short term if it is worsening .
because older people know more about pressurising politicians it is likely that pensions will hold up well ,and then fall fast.
I write as one who has an indexed pension .This is the system that will cause most damage .
And many of this set are forced to retire at sixty five .Surgeons ,dental surgeons ,most medical staff ,firemen all have to retire at set ages .
Pensions have been shockingly mismanaged, mostly by the private sector. Many private sector employers offer no pension whatsoever, and hire on short-term contracts only. These employers tend to disappear after about five years. And despite endless commissions and reports (at huge cost) the government has not come up with a transparent, understandable, and sound personal pension saving scheme for private sector workers. Are the Labour Pary and its supporters scum bags? Yes!
"Abolish the tax reliefs on pension saving on the way in, but don't tax the pensioners at the other end."
Er, it's called an ISA...
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