David's Views: Pensions
The dream of many people after a life time of work is to live a long and happy retirement. For this there are two essential ingredients besides the obvious family and friends, they are good health and good finance.
Good finances in retirement are determined by three main income sources, private/company pension schemes, savings/investments and the state pension.
In 1907 the Liberal Government introduced a state pension scheme financed by the introduction of National Insurance. This was done despite strong disagreement from the official opposition of the Conservative Party. Since then successive governments have changed the private company and state pensions, but not always for the better. Today the value of the state pension in real terms is far less than it once was.
So over a hundred years since the introduction of the first state pension the question now is - how can and how should the state assist to ensure that in retirement we all can have a reasonable income?
The following points give my view on what should happen to both improve the state pension and make it affordable for the taxpayer, particularly in the light of the decreasing ratio between the numbers of people in employment and the numbers of people in retirement.
» The state pension should provide a basic level of income so that the pensioner is not in need of other state benefits because of low income levels.
» The state pension should increase with average earnings, so that pensioners can benefit from increasing wealth in the country, which is only possible in the first place because of the pensioners contributions during their working life time.
» State pension payment should be payable as a right to all British citizens providing they have either lived in the country for a total of 30 years between the ages of 16 and 65 or any other nationals providing they have paid personal income or national insurance in the UK for a minimum of 40 years between the ages of 16 and 65.
- This would be of particular benefit for women and other carers currently don't receive a full pension
- Contributing to society by raising a family or caring for relative rather than working and paying taxes should not be punished in the way it currently is with reduced or no state pension.
- The state pension should be linked to the average increase in earnings so that pensioners could share in the countries increased wealth, which is after all is said and done built on the efforts pensioners made during their working lives
» Instead of a fixed age of retirement the retirement age should be flexible, anytime from between 65 and 75 years old, this would mean:-
- Later a person retires the greater their state pension would be
- Pensioners would then stay on the pension level they retired on until they were 80
- At 80 years old all pensioners would have their pensions increased to the same higher level
The following points give my view on what should happen to both improve private and company pension schemes; to give practical improvement to the employee, so they can make some finanical planning for retirement; and make it affordable for companies to support, particularly in the light of changes in the market from defined benefit ot defined contribution schemes.
» Companies must have a company pension scheme or pay money into a private pension scheme of the employee's choice.
» The company must underwrite all the commitments of their employees within a company pension scheme
» Income cannot be recovered from company/private pension scheme until a person is at least 55 years old
» A company pension should be a standalone financial entity and should not be considered as part of the companies assets. This way if a company goes bust the pension fund does not.
» If a company does go bust the first creditors above all others should be the company pension scheme; secondly it should be the other businesses starting with the smallest businesses first and finally it should be the tax authorities.
- Currently the creditor situation is the reverse of this and this is wrong.
- The system should protect the weakest first not the largest and strongest.
» Payments into company/private pension schemes should not be subject to income tax, but payments to the individual from these pension schemes should be subject to income tax. So that :-
- Income tax is only applied once
- Income tax is applied when the person receives the income
- Saving early for a pension is encouraged
» There should be a standard non-state pension scheme to which all company and private schemes should conform to as a minimum standard, it should have:-
- Minimum contributions levels for both employee and employer
- Minimum levels of final pension relative to contribution rate made
- No contribution holidays for either the employee or employer
- Any surplus funds in the scheme must be added to existing scheme member's pension to either boost their pension fund or increase their current pension.
- Surplus funds would be any funds 20% greater than the schemes total future commitments, including the increase in commitments as a result of using the surplus
- Maximum charges for transferring between company pension schemes
» Membership of a company pension scheme should be independent of the company you work for. Any employed person should be able to join any company's pension scheme whether or not they work for the company whose scheme it is.
- On starting employment the employee would state which company scheme their contributions and their employer's contributions should be paid into.
- The employee's contributions would be at the level they desire providing it met the minimum standards of the scheme they join.
- The employer's contributions would be at the same level they would pay into their own company scheme, which would of course also meet the minimum company pension standards.
- Employers would have the have to underwrite the pensions of their employees no matter whose company scheme they are in.
» Advantages a independent company pension system are:-
- Smaller companies could have joint pension schemes to offer the security of a larger company's scheme
- Employees need not change pension schemes if they change employer, thereby saving money by not moving money from one scheme to the next.
- In retirement it would mean that a pensioner will have a reduced number of schemes to deal with.
- The UK workforce as a whole will have increased flexibility to change employment without negative impact on their pension
The dream of a secure financial future for pensioners is not a pipe dream but one that can achieved if the Government of the day is willing to act to both make state pensions fair and company pensions just.