March 17, 2012

Pensions Plunder

No, I'm not talking about Robert Maxwell or even about the Equitable Life fiasco, I mean, of course the state Old Age Pension ponzi scheme. Firstly, there is no pension fund, money paid today goes directly to today's retirees and secondly, the demographic time bomb will force fewer workers to support ever more old people.

Imagine that someone leaves school at the age of 18, works 49 years, and retires at the age of 67 when the Old Age Pension kicks in. Also imagine that they earn the median wage of £18,000 a year.

They will be entitled to a basic state pension of £97.65 a week for a single person.

Now imagine that the same person, instead of paying National Insurance contributions of £112 per month had invested this in the stock market (assuming the long-term average return of 10% and inflation of 5%) they would build up a fund of £273,000 which (assuming a yield of 4%) would pay out £10,920 a year or £210 a week.

Now let me ask you a question, which would you rather have for your retirement, £97 from the states Ponzi scheme or £210 from your own efforts?

Please note that I have not included Employers NI contributions which for someone on £18,000 is about £130 a month, if this was also included in your own savings (and why shouldn’t it be, your employer already pays it out) would produce a fund of £591,000 which would pay out £23,600 a year or £454 a week.

But wait, it’s better than that. Not only do you get £450 a week you also get to give £591 grand to your kids when you die, try doing that with the state pension.

But wait, I still haven't finished. Because this £454 a week is dividend income you don't even have to pay any Income Tax on it. It comes with a notional tax credit which is deemed to satisfy any income tax liability for basic rate taxpayers.

Are you angry yet? It is about time that ordinary people realised just how much the state is fucking them over.



Angry Exile said...

Nicely laid out, though I'm surprised only by the scale and I'm not angry yet because I already was before I started reading.

FireballXL5 said...

Capt., like Exile I already was angry but not just with the state side of things.

I'm a little puzzled with your figures though.

I have a private pension pot that should (should being the operative word) end up somewhere between the two figures you quote in a few years time. BUT no way on earth will a 10% PA return be achieved on invested funds and the pension company/IFA's/fund managers are as ravenous as the state when it comes to leeching off other peoples money.

So I'm just as pissed by both state and private cowboys. I'd also be interested to know how draw down pension income can be classed as low tax dividends rather than just income?

Maybe I'm missing a trick or two here??

Anonymous said...

Wholeheartedly agree Ranty.

I’m just coming up to retirement and am coming to realize how governments have used our pensions for their own ideological and greedy reasons.

Buddies of mine have worked so hard over their lives only to find that they are left with a small fraction of what they have put in; one in particular, his knees and shoulders are knackered, has now decided that he will have to work way past 65 – and, by the way, he is a modest guy with a modest lifestyle.

But, once again, we have to be aware that all this talk of young versus old is one massive big “nudge” – the state wants more money and they are setting young against old; it’s the state, national and EU, that needs to take the hit.

We’re our own worst enemy – good post!

Captain Ranty said...


Not my numbers.

I'm sure Gaius will swing by to explain.


Oldrightie said...

FireballXL5 is correct when he mentions the rip offs by private pension fund schemes. Snotty Brown tried to stop them but made things worse.
At the very beginning of the welfare state this stupid way of funding was introduced. it should have been a personal pot capable of influence by the stake holder.

Pesky Anonymous said...

But I thought the fiat money ponzi scheme was about to collapse.
I thought the current monopoly game system we play was fubar.
I thought infinite growth was impossible on a finite planet.
Angry? Confused more like.
Now, I've got to dabble on the stock market? Nah, I'm off out to plant more veg, and look in on the old bloke down the road.
I bet you all wear suits you guys.

Gaius said...

Hello all,

I thought that there might be a few questions.

1. 10% is the long term average for the stock market which includes the 73 crash, 87 crash and the recent slump, it also includes years where the stockmarket rose by 20%+.

2. Pension co's, ifa's etc will financially rape you so you either have to directly invest yourself through a transaction only broker or find a low cost fund.

3. Dividends from companies come with a notional 10% tax credit that means that basic rate taxpayers have no further liability, payments from annuities are not dividend payments.

4. Don't think of a "pension" as being a pension tax wrapper that comes with a few tax breaks.

5. Infinate growth is possible ina finite planet because the free market will always come up with better ways to do things/more products that consumers want to buy.

Anonymous said...

Clear, concise and right on the money. This kind of thing needs to go on a leaflet and pushed through every letterbox in the land. Or it needs to be pasted on to bus shelters and inside the doors of public loos so it gets to as many people as possible.