We shall soon see the long-awaited report on pensions, which Mr Adair Turner’s committee has produced.It is not too difficult to predict some of the contents, namely some explosive truths which the Government will not want to hear yet the facts are inescapable. If the proportion of the gross national product now being consumed by the over-65s is to be maintained in the future, increased life expectancy will force retirement age to 68.5 years. Add the implications of falling birth rate and that age rises to 73. Trade unions can grumble as much as they like but these are the facts. If you want to retire at 65 or earlier, you will have to be very successful in life, spend little and save much, living a little when young but invest for the long-term future. Then hope that you live long enough to enjoy the benefits of sacrificing living standards while young. Of course, you have to go to university if you want a job, indeed, any job application now requires a degree or a big investment in training paid out of money which has already been heavily taxed. You then have to save for a deposit on a home. You will have to put off having a family until well into your 30s, when you might be able to afford it. That risks leaving it too late for motherhood. Hopefully, a family legacy, net of the IHT paid, may leave a little money to assist the young. But the older generation may have had to mortgage their home in equity release to survive retirement, leaving little behind. Meanwhile, you should be saving for retirement as it is the early years’ payments which compound up to give you the retirement fund needed of about 400,000, in today’s terms, to let you retire at, say, 65. Depressing, isn’t it. The truth is that the soaring cost of housing, education and the cost of funding the grandiose plans of bigger Government and an extra million public sector workers, who spend lots and create little, are leaving ever less for people’s retirement. However, all this expenditure and the consumer credit boom, accompanied with a savings and investment collapse, has ensured an ever increasing tax-raising boom. A pound spent creates about 42 pence in net tax revenue. A pound saved reduces it when tax relief on pension contributions are accounted for. The Chancellor’s prayer must be: “Please get the public saving more but not for the time being.” Britain is sleepwalking to disaster, with inadequate savings and investment, excess consumption, dec-lining manufacturing, a balance of payments deficit which is at crisis level and growing public sector spen-ding excess, leading to an increase in debt and Govern-ment debt funding crisis. Long-term, this can only be cured by increases in tax, falls in Government expenditure and slashing unproductive public sector jobs. We need a massive transfer of resources into the productive, internationally traded goods and services sector to reduce our balance of payments deficit. The economic shock waves will be very painful but are unavoidable. We have been paying our way in the UK only by a process of selling off assets. Look at the number of huge companies based in the UK which have fallen under foreign control. To buy these, foreign investors have had to buy sterling so the demand for our currency has increased, to buy investments in the UK and these purchases have balanced our sale of sterling to finance our binge on foreign manufactured goods to replace the near loss of large-scale manufacturing in the UK. And here is the worst feature of this scenario: its impact on our pensions. As so much of the UK is owned by foreign interests, a home for our savings and investments and pensions disappears every time a big company falls to foreign predators. This sale finances more current consumption and adds to immediate Government tax revenue. Large scale, capital intensive industry has all but left the UK now, so less opportunities exist for placement of the investments for our future pensions. A generation of excessively high interest rates in the UK has much to answer for, together with the open nature of the UK economy which is unique in Europe, encouraging imported goods, sale of public utilities and company takeovers by foreign interests. Compare our open economy with that of Germany or France, where foreign takeovers are banned in defiance of EU rules or effectively impossible because of bank or state-ownership of assets and cross shareholdings. The French Government owns the French electrical industry EDF. It also owns much of the electricity supply in the UK. Just one example of the very unlevel playing field. Oh, the rest of it is owned by two German companies. How interesting that our electricity industry has been partially renationalised, only this time the assets are owned by the French government rather than the British Government. A little known factor which makes it harder to save for retirement is the reduction in the size of world equity market values as bonds and loans are used to finance buyouts which take equity out of the market place. For a nation to sell off all its companies is to take out the potential investment opportunities for financing retirement. As we allowed so much foreign takeover of our manufacturing and its subsequent closure which had adsorbed much capital investment, opportunities for new pension savings have gone. The total loss of all UK vehicle manufacturing alone has probably cost the UK economy 20bn a year which equals half of our balance of payments deficit. If any one says we manufacture 1.5 million cars a year, they are wrong. Foreign car manufacturers assemble that number of cars from mostly imported assemblies and components which are designed and tooled outside the UK, with minimal UK added value. These factors all have negative impact for the long-term funding of pensions, in addition to the obvious ones. The truth about pensions is simple and painful. We will all have to work longer, probably to age 72. Public sector employment pensions are unaffordable and will have to be reduced. Final-salary private sector pension schemes have almost gone. The number of children born, especially to well-educated women in stable relationships or married, will continue to fall so as the birth rate falls even more, so the age for retirement will have to rise further. The families who should be most able to support cost of children are turning their backs on parenthood as the Gordon Brown design for UK taxation discriminate against the traditional family. The break up of family stable relationships will result in an ever increasing number of elderly, single people with inadequate incomes. A couple can live almost as cheaply as one. We are a nation hell bent on consuming the past and with no thought to providing investment for the future. This Government has fooled almost everyone. When the illusion disappears behind the economic smoke, we will be left with a weak, unproductive, low-value added subsistence economy, with a few very rich people and a big poor population and old people working past the age of 65. Research tells us that a big proportion intend to retire abroad, where living and housing costs are cheaper. The balance of payments will suffer even further as people spend all their UK pensions abroad. In conclusion, we are a nation of equity releasers, spending now, saving little, selling off ever more assets now to spend on consumption today. With the lowest savings ratio in the EU and the worst level of personal debt in the world, the vernacular will hit the fan soon. The fallout will be a falling exchange rate, as there are no more assets to sell off, and ever increasing flow of money leaving the country to pay the dividends on assets sold to foreign interests. Meanwhile, the tax on all that spending in the credit financed consumption boom keeps Brown’s coffers more full than if it had not happened but he has mortgaged all that as well, with overestimates of economic growth, understatements of Government expenditure and less opportunities for tax raising. Except, of course, that he can rob more graves via the IHT on dead people’s homes. He has been the ultimate Keynesian Chancellor at a time when excess Government expenditure and creation of credit was not needed to get us out of recession. Taxing the once black economy has been successful but is now providing diminishing returns. If the rising spectre of inflation is a feature, then the interest rate rises which will follow will have a devastating impact on the economy. Have you noticed the economic signs of rising interest rate expectations? I have. What about the investment of pension money in bonds and with-profits funds having got out of equities on the orders of the regulator on grounds of capital adequacy? Sadly, the future will mean a harder retirement for all of those who live to see retirement. Equity release is going to be the future for a large proportion of the old needing enough income for retirement. As a nation, we have been living on equity release, whether it was selling off public assets under Margaret’s privatisation, council houses, profitable companies abroad or mortgaging homes to provide for equity release for retirement funding. It’s all the same, we are selling the family silver to finance current consumption.
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The Law Society is planning to develop a product enabling solicitors to prepare home information packs for consumers selling their homes.The Government is planning to introduce Hips in 2007, and the Law Society will offer a fast online service, and will be fully compliant.As the rules are not yet in place, the Society does not […]
The latest figures from the Department for Work and Pensions illustrate that sickness absence is still a major cost to businesses, with an annual bill for sick pay and associated costs to employers of £9bn. This paper from Jelf Employee Benefits looks at the importance of recording sickness absence for any employee health strategy and how this can be carried out in an efficient manner to reduce absence, improve employee engagement and drive up profits.
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