Retire later, save public money

Today we are asked if we should abolish the fixed age of retirement. The answer is “Yes” and “No”.

The answer is “Yes”, because people should not be made to retire at a fixed age against their wishes. If they and their employers want to carry on with the contract, or if they wish to carry on and they did not sign a limited life contract, they should be free to do so. When I advised on pensions policy in the 1980s I proposed a flexible “decade of retirement” (from 60 to 70 in those days- it would now be from say 63 to 73 given greater longevity) so both men and women could chose.

The answer is “No” when it comes to the terms of the State retirement pension scheme and public sector pension schemes. A pension scheme needs to have a stated age from which the pension will be paid. This can be the default or average age, with increases in pension if you work and contribute longer, or reductions in pension if you retire earlier.

Given the state of the public finances we need to raise the retirement age for pensions purposes. Those wanting to contribute for less time should receive smaller pensions.

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49 Comments

  1. Stuart Fairney
    Posted January 25, 2010 at 8:27 am | Permalink

    You neatly highlight a fundamental problem with the state pension. If a private company said you you

    "I know we have taken significant contributions off you for a couple of decades, but since our finances are way worse than we thought or ever admitted, we will both up your contributions through NI increases and defer payment without your say so. Also, since we have been running a wholly fraudlent de facto Ponzi scheme, you probably won't get a worthwhile payout when you do get some money"

    You might reasonably phone your lawyer and begin an action for breach of contract, the fraud squad would likley arrest them and the regulatory authorities might want to take a look at the books. (Assuming you would ever be fool enough to enter into an arrangement like this in the first place).

    None of the above recourses are avilable with the government and if that isn't an argument for the complete and total privatisation of state pensions, I do not know what is.

    Do not expect this to be even mentioned in the election but expect lots about the way a few foxes die.

  2. Paul Danon
    Posted January 25, 2010 at 8:29 am | Permalink

    Those of us already in the workforce need to get our pensions when we were promised them. Maybe people about to start paying NI should be told they must work longer, but the rest of us have a deal with the government.

    • Lola
      Posted January 25, 2010 at 12:09 pm | Permalink

      The key word in your post is 'promise'. Promises are not guarantees, especially as regards State schemes which are subject to political whim. Anyway the State schemes are on a pay as you go basis, so what we need is one, for all of us to have lot more children and two stop paying unemployment benefit so that people need to work – and support us.

      • Tony Short
        Posted January 25, 2010 at 12:44 pm | Permalink

        Lola you seem to have a very carte blanche attitude. Would you be so nonchalant if your mortgage provider turned round to you at the end of your 25 year fixed term and said "sorry we expect you to pay for another 10 years because we've run into a spot of bother and a promise isn't really a promise and all that."

      • Alan Wheatley
        Posted January 25, 2010 at 2:11 pm | Permalink

        "… for all of us to have lot more children …" is the road to disaster!

        More children now is more elderly later, requiring even more children giving rise to even more elderly, and so on. It is a version of pyramid selling, a ponzi scheme, and just as fraudulent.

        • Lola
          Posted January 25, 2010 at 10:46 pm | Permalink

          I was being a bit tongue in cheek about the extra children! (I have four myself!)

          And I was not being nonchalant at all. I have been around the pensions business for a lot of years and have watched the State renege on its promises on several occasions. You just can't trust governments.

        • alan jutson
          Posted January 25, 2010 at 11:21 pm | Permalink

          Alan

          Neatly summed up in one Newspaper today, we would need a population of 300,000,000 for the workers to to fund pensions for the old in 50 years time.

          Ponzie schemes only work for the first in, then afterwards everyone looses.

        • Tony Short
          Posted January 26, 2010 at 11:32 am | Permalink

          "I have been around the pensions business for a lot of years and have watched the State renege on its promises on several occasions. You just can’t trust governments."

          Quite, and neither can you trust banks, investment companies and brokers to look after your savings either, which rather begs the question "why bother saving?" After all, those who make no provision whatsoever for their old age are supported by the rest of us.

          As an aside, might I also add that the undercurrent of resentment towards those of us with public sector pensions is misplaced. For many years we were the poor relations when private sector schemes were performing fantastically as stock markets boomed. Then (as tax payers) we were expected to bail out failed private and company pensions with the governments pensions guarantees and I don't recall a backlash from public sector unions at the time complaining that there members were compensating for mistakes in the private sector. And yet now we're treated like the scum of the earth simply for following the governments own advice and contributing to public sector pensions which promise a modest income in old age in return for decades of contributions.

          I don't doubt that the country's finances are shot, but introducing what is effectively retrospective legislation to steal our money and our old age is nothing short of a scandal. I repeat my question to you that if your mortgage provider turned round to you at the end of your 25 year fixed term and demanded that you pay for another 10 years because of their mismanagement, what would your reaction be?

        • Lola
          Posted January 26, 2010 at 2:37 pm | Permalink

          Tony Short old son you've got that a bit wrong.

          Agreed you can't trust banks but you can trust investment companies and most 'brokers' (it depends on the broker – but as this is alledgedly a free society you are expected to research for a reliabel one of those for yourself). Ask Mr Redwood about trusting investment companies. He is something to do with Evercore Asset Mnagement. And since I have been running client money as a 'broker' for a lot of years, and a client has just been into my office about another matter and complimented me on how we have managed his money I absolutely know you are wrong.

          Two, private sector final salary pension schemes. Right, where to start. Well, Norman Lamont started the taxing the dividends bit. Under Thatcher the funds were threatened with taxation if they carried on making 'excess returns'. Brown totally and finally screwed them with excess regulation, stupid compensation costs and the dividend tax credit removal. In the case of the 'excess returns' one has to understand the long term nature of investing and how 'excess returns' will average out over time. In other words there is no such thing as a short term 'excess return'. So the reasons for the failure of most private sector final salary schemes lie with government, and con artists and crooks like Robert Maxwell. There isn't reasonable space here for me to cover all that debacle.

          In my case criticism of public sector schemes is not 'recent' at all. I have been unremitting in my criticism of profligate and unaffordable and disconnected public sector schemes. By disconnected I mean disconneected from economic reality. There is no connection with the pension rewards you get and the success or otherwise of UK plc. If you were in a money purchase scheme you may not be so keen to go along with lefty wealth destruction policies like wot we've 'ad for 13 years.

          'Steal our money' My point is that it's demonstrably NOT your money. It is money earned by private business creating wealth and then taken from us under coercion and ultimate threat of violence or the loss of liberty to fund your wages and your pension.

          And I have not recommended 'taking your money away from you'. I have said that at the very leat we close existing schemes to new members but continue to honour the pension promises and benefits accrued to that date by existing members. But my prefence is to close the schemes completely to new and existing members and honour existing benefits accrued. Pensions are deferred pay, so all that is happening is that you have less future pay deferred. That is the employers (me) payroll support costs of your schemes are reduced from about 25% to 8%. Be aware, using a money purchase scheme, and assuming a reasonable rate of return, annual gross contributions of about 12% to 15% (including reasonable sick pay and DIS benefits) of gross pay will buy you a 50% to 67% of final salary pension after a working life of 44 years. So why does the state schemes cost upwards of 31% per annum. They are indefensibly expensive.

          For the avoidance of doubt Mrs Lola is a Teacher and benefits from a state pension. Mind you she entirely exploited by the education monopoly and wildly underpaid for what she does.

      • Tony Short
        Posted January 27, 2010 at 9:44 am | Permalink

        Lola,

        I actually agree with a lot of your reply but we don't live in your aspirational world, we live in the real world where the government promised people like me a fixed pension based on fixed contributions – and now they're attempting to welch on that deal. It's not the fault of the employee and the pension holder that they expanded the public sector too much and are now struggling to foot the bill and it's not fair that they should unilaterally fiddle the terms of the arrangement part way through the contract (I notice you failed to deal with the analogy I made about a mortgage provider asking for money after the 25 years).

        You agree with me that banks are untrustworthy but you suggest that most (and in particular your own) investment companies and brokers are safe places to place my savings. Well excuse me for not taking you at face value but I don't know you from Barlow Clowes so my point holds true, there are enough examples of rogue financial companies to make the average investor justifiably wary about where he puts his cash.

        As an aside I have also worked extensively in the private sector – earning money for the wealth creating side of the economy – so spare me the condescending lectures.

        • Lola
          Posted January 27, 2010 at 6:20 pm | Permalink

          Ah but the government is not the taxpayer – and neither are you, as a state employee. Governemnts have no money of their own. So why should be made to fund your pension because and not be able to afford one of my own as my wealth is being coerced out of me under threat of imprisonment and violence to pay for yours? You are part of the country so why should only real taxpayers suffer? I never ever supported the state schemes and have campaigned against their structure for years. I feel pretty sore that you and your colleagues ignored me, as did did various governments, so I can see no 'fair' reason why you should go on benefiting at my expense.

          To answer the other points.

          " (I notice you failed to deal with the analogy I made about a mortgage provider asking for money after the 25 years)." All mortgage contractes include an 'exceptional circumstances' clause, of which some lenders are now taking advantage which may well ahve th effect of extending the term. As I said pensions are promises, not guarantees and technically they are deferred pay. If your employer can't afford your pay he may sack you or he may offer you a reduced level of pay and continue to employ you. It's the same thing. Oh, and I know that the Governemnt has been using phrases when offering you employment like 'We offer a pension that includes various guarantees' – but of course they were lying to you. You will also have heard various politicians on the media banging on about 'guaranteed final salary pensions'. But not any more you shouldn't. More than one has been told off for saying that.

          "… investment companies and brokers are safe places to place my savings. Well excuse me for not taking you at face value but I don’t know you from Barlow Clowes so my point holds true, there are enough examples of rogue financial companies to make the average investor justifiably wary about where he puts his cash…" It's a free market and you are responsible for your actions. Freedom means taking decisons on your own knowledge. Do the research. You'll find someone or some company. And you absolutely shouldbe very wary indeed. I don't see the problem. If you want 'guarantees' you can use National Savings, and of course get miserly rates.

          "As an aside I have also worked extensively in the private sector – earning money for the wealth creating side of the economy – so spare me the condescending lectures" Excellent. Glad to hear it.

        • Tony Short
          Posted January 28, 2010 at 10:59 am | Permalink

          "………..my own as my wealth is being coerced out of me under threat of imprisonment and violence to pay for yours"

          And there was I thinking that tax needn't be taxing. When was corporal punishment reintroduced to beat it out of reluctant payers?

          "For the avoidance of doubt Mrs Lola is a Teacher and benefits from a state pension" – and therefore Mrs Lola's lectures to the rest of us on tax and pensions hold about as much moral authority as the Major Government when it instructed us to "get back to basics" whilst members of it's cabinet and MPs were variously engaged in corruption and deviant sexual practices.

        • Lola
          Posted January 28, 2010 at 7:13 pm | Permalink

          Eh wot? I cannot see how declaring an ineterest proscribes me from making a point. In our house Mrs Lola's money is hers and mine is as well. And I have told her (an any of her teaching mates) very clearly that I think her pension scheme is a scandal. But I have also made the point to them – and on here – that teachers are woefully underpaid and exploited by the State Monopoly of schools. I reckon I'm in the clear on the 'moral authority' accusation!

          No, I know they cannot, yet, beat it out of you – but I bet they'd like to! But they can shove us in clink.

  3. Colin D.
    Posted January 25, 2010 at 9:54 am | Permalink

    Your are correct, but lurking in the background is a practical problem. When someone retires it creates opportunities all the way down the line and theoretically – eventually – creates a job for a young person. Now that people have to work longer – partly because Labour has ruined the pension schemes – fewer opportunities for young people will emerge. We are now told that Government figures on Poles going home is rubbish (again!) and that they are – very sensibly – staying here to sit out the recession. The bottom line is that the job market will present fewer jobs and more competition for new entrants.
    There are going to be even more youngsters and new graduates who are going to be unemployed for much longer than before

  4. Aafke
    Posted January 25, 2010 at 10:05 am | Permalink

    I agree to raise the retirement age.

  5. IanVisits
    Posted January 25, 2010 at 10:07 am | Permalink

    As no politician is going to willingly want to raise the retirement age unless a crisis forces them to do so – why not "outsource" it?

    Set a parameter that says, for example – that the retirement age will always be rounded to the nearest 15 years below whatever the average life expectancy happens to be (currently 79.4 years).

    This can be re-calculated every 5 years by an independent panel of medical and social experts.

    All the politicians have to do is decide what the length of the average pension should be – currently around 15 years – and then step back and leave well alone.

  6. Stronghold Barricade
    Posted January 25, 2010 at 10:13 am | Permalink

    I'm all for the removal of the "must" retire, but if we are to rebuild much of our manufacturing industry that will entail much more manual labour within the economy with all the health issues that come with position.

    I certainly feel that for equalities sake the pension age should be the same

  7. a-tracy
    Posted January 25, 2010 at 10:48 am | Permalink

    Change the sick pay rules so that the State picks up the cost of statutory sick leave for employees over the age of 65 (68 when it goes up to 68) for all employers.

    Make a level playing field for pension schemes for all workers in the UK. Then political decisions won't be taken that affect everyone else but themselves and the protected workforce.

    Don't reduce the State pension to such a level that unfit, unhappy people are forced to stay on in full time work.

  8. Tony Short
    Posted January 25, 2010 at 10:54 am | Permalink

    "A pension scheme needs to have a stated age from which the pension will be paid."

    Agreed.

    "Given the state of the public finances we need to raise the retirement age for pensions purposes."

    If the first statement is true, then the second one doesn't follow unless you mean that new entrants to a scheme agree to it and existing members are ringfenced.

    I am a member of a public sector pension having followed government advice to provide for my old age. I pay approximately 11% of my salary in contributions and have done for 20 years. Now it would seem that the country has run out of money and there are noises that I will either have to work longer before I receive my pension, have my existing benefits ringfenced but switch to a money purchase scheme, or be forced onto a less generous pension scheme which was introduced for new entrants some 5 years ago.

    I have played by the rules. What is there to stop the government changing the rules in another ten years and forcing me to work until I drop dead? What is the point of taking out a pension if the government can effectively steal my money from me? Why shouldn't I just sit on my backside and let the state pick up the whole tab? Because that's what it effectively does – punishes the prudent and cares for the feckless.

    • Alan Wheatley
      Posted January 25, 2010 at 2:20 pm | Permalink

      Gordon Brown changed the rules in his first budget. He broke the trust between government, who make the rules, and pension holders who one day expect to receive the return on their contributions as agreed.

      The fact that no other political party took the chancellor to task on this question of trust shows that there is no prospect of things getting better.

      At a stroke, a spanner was thrown in the fundamental workings of the pension contract.

    • Lola
      Posted January 26, 2010 at 4:35 pm | Permalink

      Interesting employee contribution level Mr Short. May one ask of which particular public sector scheme you are a member?

      Oh, and by the way you 'followed government advice'. Quite. We all have been conned into believing in it at some time in our lives. Given that I long ago decided that ALL governments were essentially clueless in the aggregate it was much the best thing to ignore them as far as possible and to pay as least tax as possible. Nevertheless they were recently nearly successful in killing me when I was semi-forced to follow the 'advice' of a government health quango. So think yourself lucky they are only reneging on your pensions promise.

      Back to pensions. The local police officers (a fine body of men and women) pay about 11% into their scheme but I still have to pay upwards of 50% (or about 1/3rd of total police service costs) for their scheme through council tax. The contribution made by my local council to the County police budget is about £22m and the contribution I make to the police pension scheme is about £11m.

  9. John Burton
    Posted January 25, 2010 at 11:20 am | Permalink

    it's not just that they contributed less, they'll on average claim for significantly longer too so that should be taken into account too.

    If that is done then that seems absolutely fair and gives people extra choice at no real additional public cost

  10. Roue le Jour
    Posted January 25, 2010 at 11:22 am | Permalink

    I agree completely that nobody should be made to retire. The problem that I have is understanding where employment is going to come from for an army of old codgers. All too frequently in the private sector people lose their jobs in their 50s and never work again. Only the public sector offers the guarantee of working right up to the last day.

    I have a radical suggestion. Restrict public sector employment to the over 40s. This would mean the public sector would no longer be competing with the private sector for the most valuable employees and also offer older people a chance to contribute at the end of their working life.

    As a side effect, we would also no longer have twenty something social workers telling grown-ups how to live their lives.

  11. rob webster
    Posted January 25, 2010 at 11:43 am | Permalink

    An incoming Tory Government should raise the retirement age to 68. At the same time workers over the age of 65 should be exempted from national insurance and income tax.

    • a-tracy
      Posted January 25, 2010 at 2:04 pm | Permalink

      The changes have already been made? See Direct.gov.uk for more details:

      What are the changes to State Pension age?
      The State Pension age for women born on or after 6 April 1950 will increase gradually to 65 between 2010 and 2020. From 6 April 2020 the State Pension age will be 65 for both men and women.

      Changes from 2024

      Between 2024 and 2046 the State Pension age will increase for both men and women. This increase will be gradual, happening over two years every decade. The changes will mean that:

      State Pension age for men and women will increase from 65 to 66 between April 2024 and April 2026
      State Pension age for men and women will increase from 66 to 67 between April 2034 and April 2036
      State Pension age for men and women will increase from 67 to 68 between April 2044 and April 2046
      The age you can claim your State Pension will be determined by when you were born.

    • Sean O'Hare
      Posted January 25, 2010 at 4:34 pm | Permalink

      rob webster

      An incoming Tory Government should raise the retirement age to 68

      If you mean immediately you can go take a running jump 'cos I've only got 3 months to go! Three more years no way!

  12. Andrew Duffin
    Posted January 25, 2010 at 12:04 pm | Permalink

    @Tony Short:

    "What is there to stop the government changing the rules in another ten years and forcing me to work until I drop dead?"

    Nothing.

    "What is the point of taking out a pension if the government can effectively steal my money from me?"

    No point.

    "Why shouldn’t I just sit on my backside and let the state pick up the whole tab?"

    You might as well. Those who do, will be rewarded just as you are. Or perhaps better, if they belong to one of the privileged groups.

    As other commenters have pointed out, this fraud (for that's what it is) completely undermines all trust in the government's pension schemes.

    Let us keep the money, and make our own arrangements. Of course, as other commenters have also pointed out, for those of us who've paying into this Ponzi scheme for years, it's a bit late for that; the government took our money and p**ed it up against a wall, and now their reaction is "Hard Cheese".

    The State is not your friend.

    • Stuart Fairney
      Posted January 25, 2010 at 2:18 pm | Permalink

      "The State is not your friend"

      Damn straight. Your looter, your lecturer, your boss, your nanny, your dictator, the thing that stops you defending yourself and your family, but NOT your friend.

      • Mark
        Posted January 25, 2010 at 10:32 pm | Permalink

        Our enemy, in fact. Welcome to 1984. You may stay in Room 101.

  13. Norman
    Posted January 25, 2010 at 1:02 pm | Permalink

    I'm in my mid-30's and I fully expect that when I retire I will receive practically no state pension. I fear that by that time that a decent chunk of state pension payments will be means tested and, as I am saving a sizeable chunk each month into a private pension, I will not qualify. No doubt the reasoning will be that I am saving tax on my pension contributions now whereas others, less prudent, paid tax on the money they never saved into a scheme but spent. I do expect some kind of universal state pension but I don't think it will even cover my council tax.

    If I could opt out of National Insurance payments and invest the money instead in my private pension I'd do it in a heartbeat.

  14. Mark
    Posted January 25, 2010 at 1:41 pm | Permalink

    It was quite inevitable that the state would welch on pension provision for the baby boomer generation simply because they represent a demographic population bulge. Therefore, I have always sought to minimise reliance on the state pension – avoiding like the plague schemes such as SERPS etc.. What has been galling is the theft by Gordon Brown's taxation of private pension funds and savings that makes Robert Maxwell look like an amateur pickpocket.

    Pension theft has taken a variety of forms over the years – in the 1970s inflation was a favoured mechanism – one I'm sure we'll be seeing take centre stage again. In the mean time, private sector pensions are being robbed by manipulation of the gilts market with artificially low yields on this compulsory investment for annuity funds. "Decent pension" looks like it will remain an oxymoron.

  15. gordon-bennett
    Posted January 25, 2010 at 1:48 pm | Permalink

    We could cut out all these decisions about compulsory retirement age by allowing individuals to decide for themselves when they wish to start their pension.

    Private pensions allow you to start your pension payout whenever you like after you reach age 50 and the longer you defer the start the higher your payout. You can therefore decide for yourself when would be the best time to start given your financial circumstances.

    The government could adjust the offer for each age from time to time according to whether the economy needed to get fewer or more people to make way for succeeding generations in the workplace.

  16. Alan Wheatley
    Posted January 25, 2010 at 2:01 pm | Permalink

    I agree. The "notional" retirement age should be linked to and move with life expectancy. Private pensions have long been such that the holder could choose when to start drawing the pension, the later you leave it the more you receive per month.

    But more people working longer will increase unemployment.

    If there is going to be longer life expectancy AND rising birth rate, what are we all going to do?

  17. Lola
    Posted January 25, 2010 at 3:22 pm | Permalink

    We need to have a retirement 'range' as you say. It has to be possible for firms to let someone go who is just too old to contribute profitably. Some people become unable to contribute earlier than others, which is why we need a range.

    Conversley anyone who has acquired wealth and pension benefits should be able to retire when they want – with one or two provisos as follows.

    Final salary schemes combine successful asset management (in the private sector – in the public sector diferent rules apply) with an actuarial asessment of liability of the scheme to all of its members. Hence a charge has to be made for early retirement. Roughgly for every five years you retire early the cost of your pension doubles.

    If you are in a money purchase scheme where the pension you get is directly proportional to the money you put in and the returns achieved there is no actuarial constraint (making sure everyone in the scheme is treated fairly) why you should not draw your money when you decide you've got enough to live on. The retirement age in such schemes is meaningless. It's just arbitrary State rules that set the RA at 55. It used to be 50 but Darling Brown Balls messed that up as well.

    The State pension schemes are pay as you go. Clearly this relies on enough workers working to pay us out our pensions. I broadly agree that this is akin to an FS scheme and that RA should be set at about 65, but made flexible for those that can afford it.

    So the problem of funding for the taxpayers is not with private sector schemes at all. It is with State schemes for State employees and the basic and second state pensions. In both cases State pension and private pensions the money comes from the private sector since the State employees either pay no income tax (it being a rebate to the rest of is in wealth creating private business) or the whole amount of NIC plus PAYE deducted from their pay only just about covers the employers (that is all of us in wealth creating private business) support cost of their pensions.

    This leads directly to a solution. One, you close to all new members all State employees – including local authority employees, but not the military or possibly the police, but especially MP's) final salary schemes. Two, you open new State employees money purchase schemes capping the employer contribution at 8% (say) of pay. You make the scheme rules relaxed enough to take in members contributions up to a limit for tax relief (All pensions tax relief should be scrapped – discuss) and then you relax the retirement ages. If an employee has saved enough he can take himself off. Why not? It's his money, including the employer contributions because pensions are just deferred pay. And you relax the rules on how benefits can be taken. Much of this should be applied to any private sector money purchase schemes.

    In regards to the basic state pension and the state second pension this situation is governed by the affordability of the schemes on the support ratio of wokers to pensioners and that should be assessed on its merits from time to time. If a notional RA of 63 is 'correct' then so be it.

    But what the State bureaucracy is trying to do is combine the problems with the State employees over generaous and profligately run schemes with the State schemes available to us all. This is a typical New Labour con job. It must not be allowed.

    • a-tracy
      Posted January 25, 2010 at 6:01 pm | Permalink

      (All pensions tax relief should be scrapped – discuss)

      Pensions tax relief is used to build the pension savings pot isn't it and then tax is paid by the pensioner when they draw down the eventual actuarial salary per annum. Who is to say that the tax rate when my generation retires won't be 45% on all income to pay for the mess that is being made at the moment.

      I thought that private sector pension savings (including the tax relief) were used to invest in businesses to secure growth, create employment and wealth for the nation from the newly generated business taxation?

      If you scrap pensions tax relief you whack only one sector of the workforce as public sector pension savers have a guaranteed return from our grandchildren (if they honour it). This would simply put an even greater cost of final salary pension taxation from today onto them in the future.

      • Lola
        Posted January 25, 2010 at 10:59 pm | Permalink

        Sort of.

        Tax Relief on pension contributions. Moslty this is used up by the providers in much the same way that gross interest rates for Cash ISA's are lower than gross interest rates for similar amounts deposited in other BS accounts. Anyway it is a gross distortion and in my view at the very least restricted to basic rate taxpayers up to a relatively modest cap. Don't also forget that I am also for the scrapping of income tax generally so that pensions contributoion income tax relief would automatically be nil.

        Taking your Benefits. A pension annuity is a special sort of annuity in that the annuitant is taxed on the whole amount of the payment, not just the interest component as in purchase life annuities. So yes, A higher rate taxpayer now could play a sort of arbitrage game with tax rates by getting higher rate relief now and paying only basic rate in retirement.

        Investment. You are totally correct. Pension investing, in fact all investing is part of a virtuous circle where pensioners get income and business get capital. But that does not need to be in a pension. An ISA does the same.

        Public Sector Pensions. I have dealt with that above. Public Sector FS schemes should be scrapped and replaced with money purchase schemes with capped employer (us) contributions.

    • alan jutson
      Posted January 25, 2010 at 11:34 pm | Permalink

      Lola

      Scrap tax relief on Pension Contributions.

      Seems a simple solution which I would go for if pension income was not taxed when you retire.

      Do not think you should pay tax on Savings income either, you paid tax when you earned it in the first place.

      Both Less costly to run as less administration.

      • Lola
        Posted January 26, 2010 at 9:42 am | Permalink

        What we are really arguing for is the scrapping of income tax, a Very Bad Tax. The tax regime on pensions just highlights the anomalies and distortions of taxing incomes, especially as none of those who receive their pay from the 'State', (the State money coming from taxpayers in private business) pay any income tax, including Mr Redwood on his pay as an MP. The PAYE notionally deducted from state employees pay is just a rebate to us in private business.

        So in my utopia where there is no income tax and the State recognises that the income I make is all mine and they don't just 'allow' me to have a bit of it tax free, there would be no reason to have tax relief on the contributions to a pension scheme because there was no income tax to provide relief from.

        Then should there be tax on the income from investments and savings. No, I don't think so either. In any event the scrapping of income tax would also apply to company dividends wouldn't it? So the 'gross' dividend payments to non-income tax payers would automatically be restored because they aren't paying income tax anyway.

        The wonerful out come of all this would be an explosion in wealth creation as people were highly motivated to earn more money and companies would have avaliable much more investment capital. Combined with a genuine reform of the pensions schemes people would be highly motivated to save and invest for their retirement, or purley to be able to get out as soon as possible, onvce they realised that working – that is being a wage slave – is a bad idea.

        JUst to be controversial I also hold that if we persist in keeping income tax it should not only not be levied on anyone earning less than what is assessed as the minimum wage but that earnings OVER a certain figure, say 50,000 should be free of income tax as well. Now, that would be really 'fair' wouldn't it?

  18. John Moss
    Posted January 25, 2010 at 5:24 pm | Permalink

    No sitting MP who intends to be a candidate at the next election, can speak with any authority on pensions unless they are prepared to support the reform of the pension scheme for MPs to turn this in to a money purchase scheme to which they contribute and the taxpayer does not, other than thorugh tax relief just like everybody else.

  19. Simon
    Posted January 25, 2010 at 5:25 pm | Permalink

    Playing about with the retirement age whilst retaining defined benefits pensions for the public sector is a cop-out when they are not available to society at large .

    Pensions should be fully funded , it's not acceptable for one generation to burden the next .

    The Pensions Reform Group's proposed Universal Protected Pension at least makes an attempt to tackle the problem of innadequate pension provision with a proper solution .

    Pensioner benefits cost billions to means test and means testing disincentivises saving .
    Why can't we replace all these kludges with a single proper solution ?

    It would require cross party support but it's the future of the country at stake .

  20. Jonathan
    Posted January 25, 2010 at 6:49 pm | Permalink

    One of the first things to stop is public servants "retiring" and claiming a pension from a relatively young age; especially when they go and consult back to the department they had just left or like a certain ex- war criminal (sorry PM) goes on to earn more than £10m per year in speeches and banking fees.

  21. Nick
    Posted January 25, 2010 at 8:29 pm | Permalink

    Given the state of the public finances we need to raise the retirement age for pensions purposes.

    I.e the plan is to steal from pensioners.

    I notice that one of Camerons plans is to increase the state pension age to 70 by 2015. ie. The plan is to steal 5 years of 5,000 pounds, a total of 25,000 pounds from pensioners.

    ie. Theft. It's default.

    What's missing from this is what is and has been going on. All that NI and other money that Gordon and the Tories before him have been investing has in reality been spent. If a private pension company did that it would be fraud.

    The only reason the government has got away with it is Enron accounting.

    So I'll reiterate my challenge to John. Once in power will the Tories put all the liabilities onto the books?

    I've pushed FOI requests as to the cost of State Employee pensions to the government and they are playing silly buggers with the answers. They have admitted having the data but will not release it

  22. Robert K, Oxford
    Posted January 25, 2010 at 8:30 pm | Permalink

    The decision on retirement age should be an entirely voluntary arrangement between employer and employee. The state should not be involved.
    The idea of women retiring on a state pension at 60 and men at 65 is utterly ludicrous. Most of the people I know of that age are fit as fiddles and more than capable of working. It is a disgrace that they are encouraged to quit the workforce by the state and then become a quite unnecessary burden on the taxpayer. My mother was made redundant last year at the age of 76 (she worked for an estate agent that closed down). She was determined to keep working but was faced with extreme ageism. One notable example was that she was turned down for a job in a public library (for which she was emminently well qualified) because she was told she was too old to be insured.

  23. Mike Stallard
    Posted January 25, 2010 at 9:55 pm | Permalink

    This argument is very dangerous. For instance, if children want to work twelve hours a day, why shouldn't they? What if pregnant women want to work right up to, and indeed through, their confinement? And what if ill people want to turn up to work? Why not? It's a free world…..

    • Grumpy Optimist
      Posted January 26, 2010 at 9:47 am | Permalink

      Mike, but it would be a better world would it not? It's called trusting the people to know best for themselves.

      All pensions are an illusion of course – private and public – for at the end of the day, pensions come out of current resources. As we age, the value of our equity assets will fall and the dividends also as those of working age fall in number and become more valuable.

  24. Jmaes Clover
    Posted January 25, 2010 at 10:33 pm | Permalink

    Something worthy of consideration is the type of work a person does. No doubt office workers or librarians or judges could continue into their seventies; but look out of your car windows on a cold wet winter's day at the poor devils working on road works: can you see them working in their seventies?

  25. Kevin Peat
    Posted January 25, 2010 at 10:35 pm | Permalink

    I see where this is going:

    The youth get no work

    We get no retirement.

  26. Chris H
    Posted January 26, 2010 at 9:59 am | Permalink

    People seem to have forgotten one or more groups who "retired" when they started a family. I departed work in my mid-30's to have a son, and haven't worked since….that's twenty years ago. My pension is a small government one, based on x/80th's of final salary, which, all those years back, wasn't very high and would be viewed almost as pocket-money today. I wont get the state pension (if there is one) until I'm 65, because of the year I was born in.
    My husband's future pensions are private ones, but we both have misgivings about whether we will have enough to live on, when the time comes. I am seriously wondering whether I will be forced back to work, in my 60's, in order to get by. I really don't fancy the idea because the modern working world frightens the pants off me….I would never get past an interview these days.
    Our plans for a pretty modest retirement "lifestyle" seem to be heading towards frugal. I can see both of us still having to try and earn money until the Big Boss calls.

  27. Lindsay McDougall
    Posted January 27, 2010 at 3:32 am | Permalink

    John Redwood has got this exactly right, both with regard to prolonging employment and with regard to pensionable age. For most people – but by no means all – mental ability begins to decline quite seriously beyond age 75. My late father passed a German A level at age 79. It has to be mutually agreed between employer and employee; there mustn't be any of this Harriet Harman nonsense of people having a RIGHT to continue working beyond 65.

    I am in the position of being aged 63 and looking for work. With various lump sums due maturing over the next few years, I suppose I could muddle through to retirement, but I am simply not minded to. What is a bit dispiriting is when you know that you have the ability to do a job, you have the right type of CV, but the dreaded Human Resources Department, with their rigid mentality and box ticking attitude, won't allow you to get to an interview with the head of the relevant division. Mind you, I can understand and support the idea of giving jobs to youngsters wherever possible. Their unemployment rate is 20% and they are treated abominably by this country and its rubbishy education system.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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