Wealth Tax

[satch]

On 28/05/2022 at 10:46, Chewing Grass said:

That raises the question of Public Pension Provision, especially in the realms of Government and their Employees.

Public sector pension liability soared by 16 percent in the last year to over two trillion. The figure now exceeds the national debt and will continue to rise as the commitments to the gold-plated pubic sector pensions continues for the next 40 years. The final salary scheme closed a few days ago … but will of course take decades to work its way out of the system. When I was a young lad the consensus was that you would leave school at 16, work and then retire at 65 and die two or three years later. Your wife would probably outlast you by five or more years.

Now the average age at death is over 80 years old, if you catch Covid you will actually live for a couple of extra years … I digress. So that is something like 15 years on a final salary scheme for many public sector employees who have worked for say 50 years. You can do the math (as the yanks say) but a three or five percent salary contribution for 50 years does not fund a 15 year final salary scheme. Particularly as it was standard practice to bump people up a few grades during their final years to increase the pension … final salary pension. I would guess that many retired public sector employees are taking home more now that ever they did when they were working.

My family is not innocent in all of this nonsense and some members have benefited to a ridiculous extent. I will not go into too much detail but suffice it to say one relative retired on half salary pension (as part of the deal it was fully funded in terms of years even though he only worked in the public sector for 15 years), index linked at age 52 and is now 88 … retired on ‘final salary’ scheme for a 36 year retirement  which by some strange coincidence is the same number of years he worked … 36 with just 15 in the public sector as he left school age 16.

There are fears that this unfunded liability will not be paid and the government will renege on the deal. It will be paid and it will continue to be linked to inflation. The funding will come from the private sector who used to, many years ago, have a similar deal. It was abandoned by the private sector as it was clearly unsustainable but the public sector has only made some minor changes. These changes of course only affect the new entrants; those with the golden ticket will remain troughing on the gravy train. I have not done the sums but I have a gut feel that the ‘pot’ required to fund those who recently retired on a final salary pension would need a pension pot that is greater than their entire lifetime earnings. I may be totally wrong but I do know that funding an inflation proof final salary pension for say 15 years is ridiculous and made worse by the fact many public sector employees believe they have actually built up the pension pot and deserve the money.

So it is not the national debt that is the major problem as the government can deal with that quite easily but the accelerating juggernaut that is ‘public sector pension liability’ is an entirety different proposition … one that no government will address. How would I solve it? Freeze what the public sector employees have now in terms of benefits and from  tomorrow they start to pay into a money purchase scheme (like many if not all private sector pensions). Anyone have any other ideas?