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The so-called Pension Crisis |
The government has recently picked up on what the rest of us have known for
a while. People aren't saving enough for retirement.
The thing is, it's true. But it's not the crisis we are led to believe it is. It isn't a
matter of inadequate saving. It's more likely insufficient work.
The government say we have to do one of three things, higher taxes, more saving, or
working longer.
I don't think two of these solutions work.
If we all pay more tax there's no guarantee the government won't just spend it on
something else. After all that's what they do with our current contributions. Part
of the NI you pay is supposed to be for your state pension but the government don't
save this, they spend it all.
If we all save more, say 5% of our income, that's a sudden 5% drop in purchasing that
will throw the economy into recession. In addition it doesn't create the extra wealth
needed to fund future pensions. The thing is that no matter what each of us save it
has to be paid out of future pounds, essentially your money is invested in an economy
and that economy has to have workers in order to have production. If there is no
underlying economy to make the payment then the pounds are worthless. There has to be
a workforce generating enough goods and services to pay for themselves and leave something
over to pay pensions.
When pensions started up there were very few retirees per worker and what retirees
there were used to do the honourable thing and drop dead after a few years. So it didn't
cost very much per worker. Suppose workers worked for 40 years and lived for 5 years into
retirement. That's one retiree for every 8 workers on average. And the pension was bugger
all so it didn't cost much per worker. Now there are many more retirees per worker and it's
only going to get worse. In addition people are living longer so pensions have to be paid out
for up to 30 years instead of a few years.
These days most people probably expect to retire at 60 and live for 20 years. So that's 35
years work and 20 years pension. So now the ratio is 1.75 workers for every pensioner. A
huge change that the system just wasn't designed to cope with.
So really the only practical way to fund pensions is for people to work longer. And not
just a couple of years longer, but maybe 10 years longer, maybe more.
UPDATE. Well it's started. All sorts of employers are trying to increase retirement ages
and the workers, predictably enough, are resisting.
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| Pensions |
| Pensions are just
saving in a particular tax wrapper. There have been many changes in recent years and they are
now worth considering as an alternative to dividends in order to avoid the dividend tax. Your
money is locked up until you reach 55 though. |
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| IR35 |
| Not the fearsome
tax gatherer it was originally thought to be. The Revenue lose most cases
these days and now it's really down to getting your story straight and avoiding
unhelpful contracts. |
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| My Motorbike |
This is my motorbike. I bought it new just after I passed my test. It is a
1999 Honda Fireblade. |
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