Brexit Update

[Gwydion]

I'll try not to be political here. I really will
The state pension pot will only 'run dry' if political will desires it to run dry.
There are simple ways to take care of everyone to a basic level if we are willing to elect governments that want to.
It is a policy decision, not a an immutable fact of life.
Private pension funds have a very chequered history.

[toxicpixie]

Indeed.

[Raider4]

Far as I'm aware you can ionly cash out private pensions -the govt one you have to wait for, but you will get it.

Aye, and the first 25% is cash free!

The rest isn't though - according to an online calculator the rest is taxed at about 40% 

[Raider4]

'tax free', not 'cash free'. Doh!

[hammurabi70]

I'm fairly sure those under 40 will never see a state pension as it's predicted to run dry in the next 15-20 years even as they raise the retirement age more and more.

Just have to focus on building up workplace and private pensions and save what we can for the future (assuming interest on savings ever becomes a thing again...).

Not sure what you are alluding to.  It might well be the case that the real value of the pension declines but politicians have always used the NI income as additional general tax rather than having it squirrelled away in a distinct pension savings arrangement.  [As is well known, a businessman acting in the way politicians have done would be put in jail].  The reason for Automatic Enrolment arrangements has much to do with changes in pension provision and moving risk from the employer to the employee.  Business also got an opportunity to boost profits.  20 years ago the switch from defined benefits to defined contribution was not a big issue except that businesses needed to put 16% of payroll into pensions; what they actually did was put 6% into pensions and pocketed the difference.  Eventually the government woke up to the fact that long-term they were going to get a heap of Social Security claims from the elderly who either had no private pension or a very limited one.  Hence now there is a minimum requirement for 9% through compulsory arrangements.

I agree with your general premise that it is better to act on your own.  I did: I put money into Equitable and bought bank shares.  <Yes, truly I did, I am not making it up.>  Safest investment approach you could have.  What could go wrong?  So don't take any money advice from me!

[mmcv]

Not sure what you are alluding to.  It might well be the case that the real value of the pension declines but politicians have always used the NI income as additional general tax rather than having it squirrelled away in a distinct pension savings arrangement.  [As is well known, a businessman acting in the way politicians have done would be put in jail].  The reason for Automatic Enrolment arrangements has much to do with changes in pension provision and moving risk from the employer to the employee.  Business also got an opportunity to boost profits.  20 years ago the switch from defined benefits to defined contribution was not a big issue except that businesses needed to put 16% of payroll into pensions; what they actually did was put 6% into pensions and pocketed the difference.  Eventually the government woke up to the fact that long-term they were going to get a heap of Social Security claims from the elderly who either had no private pension or a very limited one.  Hence now there is a minimum requirement for 9% through compulsory arrangements.

I agree with your general premise that it is better to act on your own.  I did: I put money into Equitable and bought bank shares.  <Yes, truly I did, I am not making it up.>  Safest investment approach you could have.  What could go wrong?  So don't take any money advice from me!

Was just an article I remembered reading: https://citywire.co.uk/funds-insider/news/state-pension-fund-running-out-warns-government-actuary/a1082316.

But yes, always best to diversify a bit, rather than relying on a single source of income.

[Gwydion]

[As is well known, a businessman acting in the way politicians have done would be put in jail]. 

But they do - several large companies have underinvested in their pension schemes while taking large dividends,  leaving their pension funds empty.
And they don't. They walk off and start another company.
NI contributions have never been a hypothecated tax.

[hammurabi70]

But they do - several large companies have underinvested in their pension schemes while taking large dividends,  leaving their pension funds empty.
And they don't. They walk off and start another company.
NI contributions have never been a hypothecated tax.

Taking money, using it for purposes other than originally stated and then expecting future payments from different individuals to cover liabilities arising from the investment of the first is known as a PONZI scheme.  Individuals have been put in jail; I have yet to hear of any politician being similarly treated.  Unfortunately, messing around with pension money, such as doing a Maxwell [a phrase coined for a £500 million instance], is frequently excused as making poor investment decisions.  I have worked at a company that suffered such an indignity; the CEO got booted out but the cost to him was limited to the loss of position (and, IMHO, his bloated and inappropriate remuneration package).  Those who get away with it cast an unpleasant shadow on the many hard working ones who do not earn telephone-number salaries.

Hypothecation has never been accepted by HM Treasury, which is another instance of Governments insisting we do as they say rather than do as they do.  A pity they could not think like the Government Pension Fund of Norway.

The CITYWIRE article just indicates that the government is going to struggle to balance the books, which is hardly a surprise.  Having to make difficult decisions is why politicians are there.

And we are getting way off topic.

[John Cook]

Predictions like this have been around for the past 20 years, probably longer.  This article says nothing new.  It goes on to explain that "If the system is to continue to cover the current form of state pension and other benefits, then either the fund's income has to rise or expenditure has to be controlled".  Brilliant!  Who would have thought it.  That has always been the case and I think even the dullest GCSE maths student would come to the same conclusion. 

National Insurance contributions are used to pay benefits, including the state pension, and the NI fund may be in deficit, in balance or in surplus from year to year.  Deficits are made good by money provided by the treasury.  There is no question that benefits cannot be paid. 

Any surplus, after benefits have been paid, has always been used for other purposes, most recently, I think, propping up the NHS but it is usually invested, typically to help reduce national debt.  Legislation allows this and it too has always been the case.  There is nothing unusual or illegal about it.

[Orcs]

I'm fairly sure those under 40 will never see a state pension as it's predicted to run dry in the next 15-20 years even as they raise the retirement age more and more.

Just have to focus on building up workplace and private pensions and save what we can for the future (assuming interest on savings ever becomes a thing again...).

I expect it may well become means tested or they will just not increase it each year so it will gradually become insignificant.

the problem for the Younger ones is that interest rates are almost non existant, so its hard to make the pot grow.  What the youngsters need is a reasonable level of inflation to up the interest rates and the pay settlements.
Otherwise they will have to work till they drop, unless they somehow manage to get on the housing market 

[mmcv]

I expect it may well become means tested or they will just not increase it each year so it will gradually become insignificant.

the problem for the Younger ones is that interest rates are almost non existant, so its hard to make the pot grow.  What the youngsters need is a reasonable level of inflation to up the interest rates and the pay settlements.
Otherwise they will have to work till they drop, unless they somehow manage to get on the housing market 

Yeah I was fortunate enough to be able to get onto the housing market and now in the position of moving to a new house (though it's had its fair share of roadbumps and we still haven't got a date and stamp duty deadline is looming) so at least have some form of assets. But I reckon improving healthcare and longer lifespans will see people working well into their seventies becoming the norm in the not too distant future.

[DHautpol]

National Insurance benefits are, and always have been, funded on a "pay as you go" basis.  I think it was Bevin himself who made the remark that the great secret about the National Insurance Fund is that there is no Fund.  It was intended to reassure workers that their NICs were safe and being kept for the purpose intended.

Calls for a separate ring fenced fund fail to understand the issues involved in government finances.  A government cannot just leave a vast amount amount of public cash lying around.  There will be calls for these monies to be invested and there arises the question "invested in what"?  Private sector pension funds are required to have a certain proportion in Government bonds ("gilts"), so should the Government invest in gilts?

This would give rise to the Government issuing gilts to itself and paying the proceeds into the Consolidated Fund ("CF"), where it would still need to be invested to ensure that taxpayers' interests are looked after.  To avoid this circular activity the monies might just as well be paid into the CF and meet the liabilities from the CF as they arise; which is what happens now. 

Despite its name the Government Pension Fund of Norway is funded by oil revenues not citizens' pension contributions. 

[Gwydion]

The Norwegian Government Pension Fund Global was established in 1990, primed by oil revenue in a deliberate attempt to maintain a national benefit from North Sea exploitation rather than binge on it. It has a massive investment portfolio and is disinvesting from oil and gas.

It is not just a 'pension' fund despite the name, and is designed to smooth out economic fluctuations and provide a continuing benefit to all Norwegians when oil runs out (or becomes a legacy energy source).

[Leman]

However, the Norwegians do have a huge advantage in that there are nowhere near 65 million of them, with a substantial number of elderly, unemployed and under 18s/21s. Plus what did the UK do with its oil and gas revenue other than give it to Sid?

[Last Hussar]

The NI you pay won't cover the pension for most people.

Most importantly they can't invest it to pay later, because it is needed to pay pensions for those already retired. Their NI payer for the generation above and so on. Mostly because the first people to get it obviously couldn't have paid in while they were working.

The etymology of the word "currency' roots in the same as "current" (as in water,not bun), meaning to flow. An important function of government is to keep the money moving. Its generally accepted that a small government annual deficit is a good thing, as it pumps money into the economy.