Think horror, think Frankenstein and Dracula. But it is now time to add the Office for National Statistics to the genre. Its latest statistics on the country’s pension liabilities make for scary reading. If you are eating your porridge as you absorb my words, may I suggest you put the bowl to one side – in case you faint into it.
Between 2010 and 2015, the country’s pension commitments – pension rights already accrued but yet to be paid – rose from £6.6trillion to £7.6trillion. This total comprises a mix of pension promises made by the State, public sector and company pension schemes and private plans (personal pensions).
Of this gargantuan total, some £2.7trillion is backed by assets sitting in pension schemes. But £4.9trillion (64 per cent) is unfunded. In other words, this mile-high pile of pension promises will have to be met by hard-pressed taxpayers through everyday taxes.
Between 2010 and 2015, the country’s pension commitments rose from £6.6trln to £7.6trln
A big chunk (82 per cent) of the £4.9trillion comprises the right to a State Pension while the remainder relates to commitments accrued in unfunded public sector pensions – think teachers, nurses and civil servants.
Of course, such figures are dwarfed by the taxation that will need to be raised to allow the National Health Service to function without falling into perpetual crisis. Furthermore, if the economy grows strongly and tax revenues rise, then these unfunded pension commitments will become less of a burden.
Yet they are not going to go away. Indeed, with an ageing population and an uncertain economic future beyond the Brexit door, it could be argued they are going to swell and put an ever-increasing tax burden on tomorrow’s workers.
Steve Webb, director of policy at financial services provider Royal London, served as Pensions Minister under the Coalition Government. Although too diplomatic to describe the Office’s pensions statistic as Hammer horror like, he does admit the numbers are ‘mind-boggling’.
This mile-high pile of pension promises will have to be met by hard pressed taxpayers
More importantly, he says they should trigger an urgent debate as to how the workers of tomorrow are going to pay for all these commitments. A further pushing back of the State Pension age? An end to unfunded public sector pension schemes? Or higher taxes?
Difficult questions that raise all kinds of uncomfortable inter-generational issues around fairness. Horror-like pension issues that most politicians would rather skirt than answer head on.
Horror story over. So back to the porridge.
‘Time For Change’ report proposes a radical simplification of the Isa regime
Personal finance journalists are sometimes accused of being more destructive than constructive, looking for the negative rather than the positive. Guilty M’lud.
Yet no one can accuse my colleague Laura Shannon of this. Since last autumn she has spent a lot of her spare time (when not looking after her young baby) helping frame a report into the future of the tax-friendly Individual Savings Account. Last week, it was published and yes it was greeted rather positively.
The report, published by the Association of Accounting Technicians, is titled ‘Time For Change’ and proposes a radical simplification of the Isa regime. It argues powerfully for the current mishmash of Isas to be brought to an end. It says that the Lifetime Isa should be scrapped, a view shared by many experts who believe it is a misselling scandal in the making.
It also recommends the end of the Help To Buy Isa although it believes the Government should continue to offer tax-free bonuses for those saving towards a home – just not as part of the Isa regime.
Instead, everyone should have the right from birth to take out a single ‘Everything’ Isa – inside which can be held the proverbial works: cash, shares, investment funds and interest bearing loans to small businesses (peer-to-peer loans).
The annual contribution limit would be capped at £20,000 (the same as the current Isa allowance) but with a lifetime limit of £1million. Unlike pensions, the lifetime cap would be applied to contributions, allowing any Isa pot to benefit from investment growth.
Time For Change is a welcome and thought-provoking report which the Government would be wise to act upon. Indeed if I were at the Treasury, I would now get the association, Shannon and the report’s other contributors – a mix of politicians and financial experts – to come up with a similar report on pensions.
Compared to Isas, pensions complexity is approaching horror proportions.
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