What is happening with Your
Lets' start with some history...
When the basic UK State Pension was first introduced in 1908, means-tested pensions were paid out without anything having already been paid into the scheme. It required (and still requires) a continuing supply of (new) taxpayers to pay for current State Pensions.
Whilst the State could have set up the UK State Pension scheme on a properly costed and funded basis, it chose not to (because it would require massive tax rises to properly fund future pensions).
Then again, in 1908 only a small minority of the population would have lived long enough to receive a State Pension. On average, only a few people would live for a couple of years thereafter.
Fast forward to 1946
The Post-War Labour government introduced National Insurance. The basic idea behind National Insurance was that everyone would be paying National Insurance contributions and everyone would then be entitled to a basic UK State Pension that would provide the funds for a "reasonable standard of living".
Add another 70+ years later . . . .
But, don't kid yourself, nowadays, nobody is able to live comfortably just from their State Pension. Indeed, pensioners may well be worse of in 2015 than they were in 1980.
The State Pension allowance has risen from around £23 a week in 1979 to £97.65 today, and from £152.30 to £156.15 for a married couple, an increase of 2.5%.
Meanwhile, the current average size of a private pension pot is £24,335, though two-thirds of annuity purchases are for less than £20,000. Based on these figures, a man aged 65 who does not smoke can expect to retire on an annual income of £1,608. Combined with the State Pension, a pensioner can expect an annual income of £6,147.
That’s clearly not enough to live on in some comfort!
Based on estimates for inflation and earnings, the full State Pension for a single person may rise to £106 a week in 2012. But this is still not as much as in the 1980s because, for many years afterwards, the link between the State Pension and average earnings was broken by the then Labour Government.
British life expectancy is now also far longer thanks to major improvements in food, medicine and health care, and the decline of heavy manual labour in the latter 20th century.
The end result is that, barring a major catastrophe, most people will live much longer and be able to draw their State Pension. Currently, the average 65 year old person will be entitled to receive their State Pension for at least a further 18 years.
How Long Did You Say I Will Need To Work?
October 2010's Comprehensive Spending Review has confirmed that the State Pension Age is to be raised to 66 before both men and women will receive their State Pension.
This means millions of men and women will have to work until they are 66 before receiving their state pension.
Demographics... is sooo boring!
I guess it is, except when it comes to our own expected longevity and retirement plans.
The worsening demographic situation in the UK should be a concern to all of us as it will have a major impact on the future of our pension and health care system as we know it.
Be forewarned though...
We are facing an ‘age’ crisis, not just because we are living longer but also because of the
decreasing number of younger people in the UK population who will have to bear an increasing burden. And it's even getting worse!
When you look in the 'State balance sheet' for the pension liabilities you won't see anything. This is because politicians like to pretend that State Pensions are not a debt owed to current and future pensioners.
Instead the State demands that people pay National Insurance to pay for current pensions. Whilst future workers will pay for future generations of pensioners.
Your National Insurance contributions are not invested on your behalf. Rather, they are used to pay for our current pensioners.
Sounds sort of familiar, doesn't it?
This is typical of a so-called Ponzi scheme - an investment scheme which pays out high returns to some investors by using the monies invested by other investors - made famous most recently by Mr Madoff in the United States. And we all know how that ended.
The State Pension scheme is clearly a variant of a Ponzi scheme because it requires a continuing supply of taxpayers to pay for current State Pensions.
So what will happen than?
When you retire, the then Chancellor decides how much will be paid out in State Pensions, and to whom. What you then get bears no relationship to the amounts of National Insurance payments you have paid in over all those years.
Whilst conventional company pension schemes set aside a separate fund to meet future pensions, the State Pension is paid out of ‘general taxation’.
In return for your National Insurance payments the State currently ‘promises’ to eventually pay you a maximum pension of approximately £5,000 per annum (£7,900 for couples).
And what about your State Second pension?
Did you know there is something called the State Second Pension scheme? The additional State Pension, or State Second Pension, is paid in addition to the basic State Pension.
for information on State Second Pension.
What's happening with the State Pension Age?
I pity most of the “baby boom” generation; yes that’s you and me born between 1946 – 1964. It’s even getting worse for people born after 1964.
Because the government is gradually increasing the age that you become entitled to your State Pension.
for more information on changes in the State Pension Age.
Return from State Pension Crisis to Home
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