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Thursday, June 25, 2009

The Pension Blackhole

At the start of Labour's term in office in 1997, Gordon Brown made a tax raid on pensions to the tune of around £5BN. He was warned at the time that the raid would precipitate problems within the pensions industry.

Brown is not a man to listen to the opinions of others, when they contradict his; as such he duly ignored the warning.

The country is now reaping the whirlwind of his folly as, coupled with the economic downturn and out of date actuarial tables, the pensions industry faces a crises of underfunding.

Research from PriceWaterhouseCoopers shows that 96% of all employers now think that defined benefit schemes are unsustainable, and 74% are considering halting all accruals for existing members.

This means that even those of us in the private sector who are already members of a defined pension scheme will find that "certainty" taken away from us.

The public sector (our beloved MPs included) still pampers itself in the delusion of fully funded defined benefit schemes, the funding of course made up by an ever increasing burden on the hapless taxpayer.

Brown made half hearted U turn yesterday by putting the brakes on plans for a 7% rise in taxpayer contributions to MPs' pensions, after pressure from the Conservatives and Liberal Democrats.

However, the reality is that the public sector schemes are not sustainable.

Those who delude themselves that they can continue to demand ever larger contributions from the taxpayer, to fund these schemes, will find that the taxpayers will not tolerate being milked in this manner any more.

Failure to address the gross disparity between private and public sector pensions will cause a state of semi "civil war" between the private and public sector, as taxpayer resentment of the public sector reaches boiling point and the public sector fights to protect what it sees as its rights.

Brown is most assuredly not the man to address this issue.

1 comment:

  1. the worse thing is that more and more of the money that we pay in "towards our pensions" from our salary goes towards other things instead.

    (Let alone to prop up failing private pension companies that were too invested in hedge funds that were risky)

    Therefore we can't expect a decent pension from the state either.