Print

20/01/2013 - Ponzi Pensions

The Con/LibDem coalition government plans to replace the existing state pension system, where payouts include the basic state pension, S2P+Serps,and the graduated pension and savings credit, with one new single-tier pension. It is planned for 2017 at the earliest.
 
Simplification of state pensions is supposed to be good news for low earners and people with interrupted work histories – such as women who gave up work to care for others. It is certainly bad news for 6m British workers who will pay more National Insurance Contributions (NICs).
 
Most workers will find they have to pay more NICs and for longer before receving any benefit under changes long trumpeted by the government as the greatest reform of state pensions in a century but which others will see as a Ponzi scheme* unravelling under the strain of politicians’ promises which were never properly costed or funded.
 
Let's look at the facts:

Will I be worse off?
 
The self-employed and women will become eligible for the new single-tier state pension rather than the lower pension they have now. But high earners, who pay more National Insurance, will no longer qualify for a higher pension. Meanwhile, those in a "contracted-out" pensions scheme, such as teachers and nurses, will pay higher NI contributions.

Does that mean many will be better off?
 
Department of Work and Pensions figures show that for those retiring in 2040 about 45 per cent will be worse off, 35 per cent better off and 20 per cent the same under the proposed new single-tier state pension.
 
Will everyone get the new pension?
 
No. You will need to have 35 years of NI contributions to get the full pension. Fewer years will mean a lower payout and those with less than 10 will get nothing.
 
The biggest shake-up of pensions for a generation has left thousands of women concerned that they will lose out on valuable pension benefits – even though the reforms were supposed to create a simpler and fairer system.
 
It isn't just women who are worried that they will now have to pay more to get a full pension. Many baby boomers, who are just a couple of years away from retirement, have been told they will need an additional five years' National Insurance contributions if they want to get the new higher state pension – worth £144 a week – in full.
 
Those who have taken early retirement or been made redundant in their fifties, or who have moved into part-time work, may struggle to make these additional payments, particularly as those worst hit need to make up five years' of NI payments but are just four years from retirement.
 
Pension campaigners are now calling for the Government to put in place special provisions to ensure that people in their fifties and sixties do not lose out.
 
Ros Altmann, the director-general of Saga, said the reforms to the state pension were "great in principle" but she was concerned that the details disclosed this week could penalise many women who have already faced the injustice of seeing their pension age raised twice.
 
"The devil is in the detail," she said. "And the detail here is a mess." She said it was "disgraceful" that the changes meant many people were not being given time to plan their retirement properly.
 
"People should not have to contend with substantial changes to the pension rules if they are within 10 years of retirement," Ms Altmann said.
 
Almost half a million women born in the early Fifties have been at the sharp end of almost every pension change in recent years. Plans to raise the pension age for women from 60 to 65 were first put in place in 1995, with the ages being equalised by 2020. But in 2010 the Government speeded up this timetable, meaning that up to 400,000 women who were already in their fifties saw their retirement age pushed back again, with some facing a further 18-month delay.
 
Meanwhile, more than 11m British retirees will see no benefit from the change at all – despite many pensioners having paid NICs all their lives. No wonder the government is delaying the introduction of its long-promised plans until after the next General Election.
 
 
* What is a Ponzi scheme?
 
A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity.
 
Report by Ian Bell