Doh – I sent this directly via e-mail. It was stripped out. Apologies to all, and here is the post as it should have been.
Dear Dr Gabb,
I am on holiday in China, but want to send you some comments on pension reform, but I couldn’t find a thread on the LA site to post it in. Would you consider opening a thread on this topic?
I am totally opposed to the government’s decision to force all companies with more than 50 employees to have a pension scheme and to auto-enroll all employees in it. While it is good for everyone to have a pension account, a scheme run by your company is not yours to manage and control – and in times of economic downturn it can leave companies nursing large pension deficits for people who no longer even work for the company, requiring extra money to be put in just at the wrong time.
In Hong Kong, all employees contribute to their Mandatory Provident Funds, and I think their employers either can or have to contribute too. I would like to see a system whereby national insurance was totally scrapped, and everyone on PAYE (as long as it lasts, as libertarians would scrap income tax altogether) be required to contribute 10% of their monthly salary into their own SIPP, self-administered personal pensions. The company could also contribute more (but not be forced to), and all these SIPPs would be up to you yourself to manage. You could make the decision to invest in commodities, emerging markets or whatever yourself, and your pension scheme would be your own – and also your own problem. There would be no pension debts in company accounts (or only for already retired employees as the existing arrangements are phased out), and no public sector pension deficits either. Quite simply, all public servants would also pay 10% of their salaries into their SiPPs too.
There would be no 200k pension for ex-police chiefs – quite simply police chiefs would pay 10% of their existing salaries into their SIPPs and manage the assets themselves thereafter. For most people, the abolition of NI would largely cover this scheme, and it would eventually free up the population from total reliance on the state in their autumn years. I would not increase civil service pensions to cover the fact that they were now having to pay into their own SiPPs – the abolition of NI (which would require cuts elsewhere) would cover that – and existing pension monies, where they existed would be distributed to the pension members as contributions to their SIPPs. Quite simply there would be no pension assets other than the SiPPs, which everyone would hold.
I would then abolish the state retirement pension as an entitlement. Those after 65 whose SIPPs had not earned enough could apply for income support (a benefit, not an entitlement). Clearly we have to think about getting out of the whole social security arena, but that would be easier to do in the future when everyone had saved up a bit in their SIPPs.
I would also make pension assets fully inheritable with no inheritance tax. Currently that is only the case between spouses. I would also totally remove the requirement ever to buy an annuity, which is just one way of making sure there is nothing left of pension assets when you die. I would also look again at the 25% lump sum that can be taken out of your pension at 55. As long as the pension assets remaining after a lump sum was taken out were enough to finance a retirement, there would be no need to restrict the lump sums to 25%. Eg if you had 1 million in your pension, why should you only take out 250K as a lump sum? As 750k is more than is required to finance your retirement, assuming a 400K pension paid a 28K pension at a 7% annuity rate. In other words, I am saying anything over 400K should be available as a lump sum free of any tax. And some access to pension monies earlier than 55 years of age, eg to buy houses, should be facilitated, as long as there was enough left in the pension fund to reasonably expect to fund your retirement.
I know libertarians want to get the state out completely, but I think what I outlined above would be a good stepping stone. It would make it easier to fully get the state out later on, as people would have assets. The point about abolishing the trillion-plus public sector implicit pension debt at a stroke would be a huge improvement in our country’s finances.