Blogs occupy the grey area between informed comment and unabridged diatribe. The trick is to make the latter sound like the former. Here goes. 10 reasons why your parents don’t love you.
- Private pensions
When I first found out about defined benefit pension schemes I snorted coco pops out my nose onto my power ranger jimjams. You what!? This is perhaps the greatest con the boomers have pulled off. I’ll be brief because it’s boring as sin but very important, (then we can move onto Brexit and Climate Change and Kim Kardashian). There are two types of pension schemes, Defined Benefit (which your parents have) and Defined Contribution (which you probably have).
In a defined benefit scheme there is a formula for how much pension you are paid. Something like 1/70th of final salary (these schemes are also known as final salary pension schemes) multiplied by years of service. So if you worked for the company for 40 years and had a final salary of £50k you would get (1/70*40*50 = £28,571 per annum). The wise guys (known as actuaries – slightly less boring than accountants) who worked on these formulas plugged in the wrong numbers. It turns out that when society stopped smoking and started wearing its seat belt it belligerently refused to die at an age convenient for the perpetuation of such schemes. They are unaffordable and many of them are in deficit to the tune of billions (you’ll have heard BhS of course). There is a deficit when the liabilities (the sum of all the formulae of each individual in the scheme) outweighs the dosh put aside to pay all those pensions. Sometimes this deficit is bigger than the market capitalisation of the company. Pensions gag coming up – BA is a pension scheme with a side line in air travel.
The other scheme (defined contribution) puts the risk onto the employee. The scheme can’t be in deficit. If there is less money in the pot you just get a smaller pension. How risky you say? My pension scheme (the peoples pension – which by the way I love) allows me to change my risk profile from safe to ‘adventurous’. This euphemism is much more palatable than ‘really risky but you have no choice if you want to survive on more than cornflakes, kid’.
The pensions issue presents a double injustice for the young. Number one, they are denied the benefit of these generous schemes, and number two, they have to pay to plug the deficit in these schemes. Pensions deficits affect profit which can be passed on to consumers and come at the expense of pay rises.
You could always hold out for technology’s ability to deliver a post scarcity world in which prudent squirrels like myself curse the day they put money in a pension scheme instead of buying a new pair of pyjamas. I didn’t know there was a brown ranger. IT’S CHOCOLATE MILK!
1.5 Pensions – tax relief – not quite worth its own number but important nonetheless
Higher rate tax payers have to pay more tax. This is quite progressive right? Well yes but it also means that the tax relief on their pension is paid at the higher rate which is double that of the lower rate. And who are these higher rate tax payers. You guessed it, older workers! A pensions advisor once said to me, ‘Handsome, I’m putting all the extra contributions I can in coz this scam won’t last forever’. At one time there was a worry that George (he used to be the chancellor) would equalise this injustice but he didn’t. He did go and put the higher rate up, saving those rich (and remember older) workers even more. Ay Caramaba! (Simpsons reference for the gen Xers).
- State pensions
Put your Ricycles down because it gets worse. Not content with their private pensions they set their sights on the state pension.
The triple lock means that pensions will be uprated by inflation, earnings, or 2.5% whichever is higher. Had inflation or earnings been the higher number this policy would have had a semblance of fairness but with an unprecedented squeeze on earnings (I’ve covered this in a few blogs) and tumbling oil prices this policy only widened the gap between the generations – cumulatively so with each successive year that passed.
I know what you’re thinking. Leave them alone they’ve worked hard. What have you got against people having a decent retirement. It’s true, they do, and so do you too. Pensioners aren’t an easy target like foreigners. Everyone has a nan that they love. My girlfriend Celine calls hers Bonne Maman.
I’ve really gone on and barely concealed the diatribe. Who would have known I had so much to say about pensions? A few weeks back the mollusc curator at the national history museum gave me a behind the scenes tour. It’s a long story involving a severed hawksbill turtle head called Celine (I sponsored an exhibit for my girlfriend at the Grant museum and got invited to their summer away day). It got me thinking, earnestly, that I could easily have studied biology and be writing blogs about brassicas or bryzoans (up there with molluscs for my favourite curation). Even though it disrupts the narrative flow I’m going to pause, take a breather, and come back again with property and rents, Kimmy, and cereal puns.
Me with the biggest mollusc in the museum (if not any museum). Erghh, I look like Robert Peston.
numbers 3 through 10 to come. Watch this space.
Cheerio for now.