Pensions: Britain’s Ponzi Scheme

What’s going to happen to your pension, the Unionists like to ask. It’s a very good question and they’ve managed to spin it relentlessly to frighten pensioners into thinking Scotland couldn’t afford to pay its way.



Like so much else in this debate, the case is built on a myth. It pre-supposes that Britain’s current arrangements are rock-solid and sustainable…carried aloft on David Cameron’s broad shoulders.

Reform Scotland’s report this week is the latest to demonstrate just how threadbare the Unionist case is and how reckless they have been with the wealth of the nation. There is a welter of evidence now that Britain’s pension provision is an elaborate Ponzi scheme heading for its day of denouement.

The truth is that there is no mammoth national pension pot earning interest through judicious investments in order to pay out to retired public sector workers and the general population of old age pensioners. As Reform says, ‘today’s national insurance contributions and employee contributions almost entirely pay for today’s pensioners. They are not going to a personal pot for the employee who’s paying them. Politicians have been engaged in a conspiracy of silence on this issue and they must now begin to be more open about the situation in which we find ourselves. People deserve to know where their money is going and what their future prospects are.’ Well, here’s a clue. The Intergenertional Foundation asked 50 economists what they thought would happen to British pensions.

Under the title Can the UK Afford to Pay off Pensions, it says that on top of its sovereign debt now reaching £1.3 trillion, the UK also has far greater liabilities to public sector retirees and general OAPs amounting to nearly £5 trillion (£1.2 for the state workers fund and £3.84 tr for OAPs). That is the ongoing cost of paying our non-private pensions which will have to be met by today’s and future generations.

Of the public sector pensions bill, it says, only 25 per cent (of the £1.2tr) is funded. So that the government has reserves amounting to only a quarter of the amount needed to service the pensions, leaving the rest, three-quarters to come from current revenue – tax receipts and National Insurance.

For the much larger amount needed to pay for the state pension – the £3.84 tr – there are no reserves at all…no savings, no investments accuring interest, nothing but taxes paid today by you and me which should be used for current spending. Pension costs should be met from historic savings built up over decades of National Insurance payments and government investments, including a fund using our own North Sea oil. During periods of plenty, when Thatcher had the oil and Brown had the housing boom, exceptional receipts should have been saved for the benefit of the nation. Instead Britain, now telling us they know best and have the clout to carry the economy that we don’t have, simply spent it, much of it on lowering taxes. They have left a generational burden on young people today and their children and their children’s children to pay for the benefits we get now. Meanwhile, as they get the bill for us, they will be unable to put enough away for themselves. Clever, eh?

‘It seems reasonable to ask whether this is feasible, especially in light of Britain’s worsening demographic outlook as the population ages’, says the Foundation in an uncomfortable reminder for Better Together of the reality of bankrupt Britain.


So the foundation asked the economists two questions. ‘According to the ONS, Britain currently has £1.2 trillion worth of public-sector pension liabilities, three-quarters of which are unfunded. 1 What do you think is the likelihood that these will all be paid in full?

In Britain the state pension is currently paid regardless of other income and assets. However, in some other countries (including Australia) it is means-tested. 2 Do you think means-testing of the state pension is likely to be introduced before 2040?

The answers were 36 of the 50 respondents (75%) said they thought that the UK’s public-sector pension liabilities would not be paid in full.

Almost half (46%) of the respondents said that they thought the basic state pension would have become means-tested by 2040.

Does that sound like a solid base to guarantee your pension? If you area pensioner Don’t Know worried about your income after independence, shouldn’t you think hard about what will happen without independence. Remember, the Unionists are promising another £25 billion of cuts to spending.

Here are some quotes from the economic experts.

The likelihood that these liabilities will be paid in full is as close to zero as statistics allow. In fact, the ONS data don’t really tell half the story. To illustrate, in order to finance existing- law pension, healthcare and long-term care commitments for the next 50 years, the government would need to have nearly 4.5 times the current value of GDP in the bank, earning interest that’s reinvested each year. This is simply to recognise the enormous funding that our demographic transition will require, and that the burden rises every year corrective actions are deferred. The only way the nation can restore some semblance of budgetary stability, and meet (restructured) obligations is via some combination of social programme reforms to limit the rise in costs, tax increases, and higher economic growth, derived from faster growth in productivity.’

Effective default through cutting benefits, means testing, higher tax, restricted eligibility etc is certain.

The next financial crisis will be a pension crisis

Lower proportions of current 20-year-olds supporting a larger number of pensioners means that unfunded benefits will have to be met through rises in taxes. This will not be tolerated by a generation that has already been disadvantaged by the generation above.

Using a more robust discount rate, these liabilities are far greater than £1.2 trillion. Despite the perceived strength of the covenant, there is a strong possibility that these will not be paid in full someway down the line.

There is a near zero risk of a UK sovereign debt default – say 5% to 10%. However, it is more likely that there will be a covert default engineered via high inflation, as in the 1970s. Current UK fiscal policy is not sustainable. Taxes are at their feasible limit, and spending commitments cannot be met.

Not quite the Better Together/George Osborne mantra, is it? Remember too that Gordon Brown slashed British private pensions by removing £5bn a year from our pension funds, now amounting to £100bn. According to Brewin Dolphin a 40 year old man planning to retire in 25 years making monthly contributions of £250 to add to his current £60,000 pension pot will eventually lose more than £120,000 on the final value. He’d have to work an extra two years into old age to make this up. Gordon is now Better Together’s pensions expert.

Meanwhile I’m not sure we could do much worse than the scandalously reckless and incompetent Whitehall regime that leaves us with one of the lowest pensions in Europe. Here’s is Business Scotland’s proposal – to collectivise into one “super fund” all the occupational pension schemes which have members who are employed in Scotland This includes private and public sector schemes as well as defined benefit and defined contributions schemes.

The fund will be the source of pension payments to Scotland’s citizens when they retire. Benefits will be based on earnings, so the scheme will be of a defined benefits character for all. The scheme will cover all citizens whether they are currently in a pension scheme or not.

The fund will be invested to support a fairer, greener and environmental sustainable economy

The fund will be managed by a National Board of Trustees whose responsibilities will be to protect the long-term viability and financial sustainability of the fund.

And since we can put off the day when retirement age has to go up, we can give an immediate rise to pensions on independence. This is based on evidence that Scots die younger than the UK average so are penalized by getting their pension later – a stark actuarial and demographic fact that caused mock amazement from Johann Lamont on STV – the woman whose party is responsible for those early deaths by representing areas like Calton for decades at every level of government without an anti poverty programme and who still believes the Union, bankrupt and mendacious in its pensions policy, is to the way to prosperity in old age. Over 60 per cent of Scots polled disagreed.

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37 thoughts on “Pensions: Britain’s Ponzi Scheme

  1. Great post Derek. I saw The Intergenertional Foundation report when it came out. I was already aware of the UK pension problem but was shocked to see the clarity of the alarming expert opinion.

    I remember one of the quotes for the experts being along the lines that the next crisis will be a “pensions crisis”.

    This is one of many UK problems emanating from financial mismanagement. I personally think a future problem will be the write off of student loan debt. Young people in England are effectively mortgaging their lives before they even leave school. I fear this flawed model being “forced” onto Scotland in the event of a ‘No’ vote.

  2. Thanks for giving us something serious to read and consider that reaches the parts that last nights shouting match failed to reach.

  3. “denouement” Had to google that one! Another great piece, it’s such a pity Scotland doesn’t have an honest press to publish something like this.

    • Yes, we badly need an honest Scottish press. Luckily, more and more people are reading Derek’s work and the various pro-independence articles etc. ( Personally I find reading these a lot more enjoyable than ploughing through a daily newspaper! )

  4. As more and more information comes into the quasi-public domain (i.e.. except on TV and in “newspapers”) it becomes clearer and clearer that we in Scotland have a once in a lifetime chance to escape the consequences of a Westminster elite (all Unionist parties) hell-bent on short term profiteering at the expense of the people of their so-called constituency. If the people of England, Wales and Northern Ireland are to have any future for their children and grandchildren, then the example of a successful independent Scotland running a responsible, democratic society is a must to show them that the neo-liberal agenda has an alternative which could work for them too.

    Take every opportunity to talk to family, friends, shopkeepers, suppliers and acquaintances to provide the true facts about Scotland and independence. Don’t patronise, just give them the facts and ask them to think about them. From personal experience, most people’s reaction is one of anger when they realise how they have been lied to over the years.

  5. Not only did Thatcher, Blair and co underfund state pensions, they also allowed a lax supervisory regime of private pensions in which contributory companies could take pension holidays, thus leading to the collapse of many schemes and the devaluing of others. And don’t get me started on the way individual pensions were hammered by the stock market collapses.

    • Think what good Scottish journalism would be like if their “threat” to keep the BBC came to pass! This article is a good example.

  6. ALL politicians rely on the electorate having short memories, but New Labour in Scotland must think we are all brain-damaged amnesiacs with their decision to wheel out Gordon Brown to pontificate on the pensions issue. In truth, the only man who could have LESS credibility than “Super Gordy” – the man who single handedly “saved the World”, is his deceased, former colleague and Labour MP – the pensions thief, Robert Maxwell! Who knows, perhaps Gordon was given “tips” on how to plunder pension funds by “Capn’ Bob” aka “The Bouncing Czech” or his full-time toilet assistant and former Scottish Labour Party Secretary, Helen Liddell aka Baroness “Bucky” of Fast. Of course, Gordon was, undoubtedly,an amateur (only £100bn pilfered) when compared to “Capn’ Bob” but it was assuring to see that there IS, indeed, life after death – with the resurrection of these 3 political corpses!

  7. So ultimately this will lead to more pressure being put on the younger generation to pay more in taxes – these are youngsters currently leaving colleges and universities in England having built up years of tuition fees and living costs and have no prospect for employment because the job market is horrendous.

    What hope do they have ? What have they got to look forward to ? 21 years old, saddled with uni debt and high taxes to pay for the pension black hole whilst seeing their welfare state disappear.

    At least we have free tuition here in Scotland, but thats only thanks to the SNP – I’m sure the unionist parties would re-introduce it in a heart beat.

    What a grim start in life we are offering our children.

  8. Arguments seem to mature as we creep inexorably to Sept 18. The Business Scotland idea you outline of a superfund overseen by a Board of Trustees would meld with today’s revelation from the Church of Scotland, the Common Weal ideas etc.

    In fact I believe in a God on the basis I would prefer to die thinking there was one, and finding on my deathbed there wasn’t, rather than not believing and finally discovering there was ! The fact the Kirk has, tactfully, albeit, entered the arena may persuade me to re-enter one of its temples from whence I departed some time ago since I was fed up being harangued about potentially burning in hell. After years of attending a much more relaxed CoE service this reminded me of the Orthodox faiths ( you know, the ones where only the “officials” are really at home behind the iconostasis ). I would indeed prefer my minister to be more of a social worker.

    Unlike Hugh Fearnley Whittingstall who couldn’t quite take it when one of his Scandimania interviewees said she didn’t mind paying higher taxes ( well what would you expect of an Eton boy ) I would also be happy to give up my free buspass and winter fuel allowance if means testing arrived and our national Board of Trustees were seen to be doing their bit.

  9. Far too optimistic, when you really know what is in store for tomorows pensioners if they are hoping for a life in old age, you won’t be angry, you’ll be scared to tell.

    Item : there is a National Insurance fund, It is “kept” by the Commissioners for the Reduction of the National Debt (yes, really). You should compare it with the minimal liability you have assumed. Oh, and it really doesn’t exist as they’ve given it to the Treasury in exchange for a promise of fair treatment.

    Item : Even an iScotland with its oil wealth and all the youngsters returning to take up the opportunities iScotland will provide will not be able to afford pensions on the present basis. An iScotland will have to call a new Beveridge and recast the whole of social security to suit the will of the people and the econmics of our new state

  10. Obviously the YES campaign, especially the SNP, must be aware of these facts as well. Are they really “keeping their powder dry” on this information? Why doesn’t the campaign start to emphasis the reality of a NO vote – s*d it if the MSM say it’s scaremongering, it isn’t, it’s reporting facts. You know, the job they should be doing.

    God help Scotland if there is a NO vote

  11. Apologies this is O/T but relevant I think. A committee in Westminster has set up an inquiry into the impartiality of Civil Servants in Scotland during the referendum debate. After the intervention of the Treasury Permanent Secretary in the currency debate, this seems somewhat cynical and bullying. Spot the union jacks in the BBC accompanying photo!

  12. majormacbloodnok

    By the way Derek – you probably noticed, but Wings over Scotland’s fund-raiser (target £53,000) garnered over £63,000 (and still rising) in just over 8 hours (with 34 days to go). I wonder if the BBC will report on what must be the most remarkable political crowdfunding event ever in Scotland?

  13. As someone approaching the OAP stage in life,I have had many conversations with others of my age and am continually staggered at the lack of knowledge about how the UK state pension is funded.
    Funded to most means a fund which they have paid into and consequently is at the discretion of the UK government as to who gets it or not.
    One of the main obstacles to state pensioners voting Yes is that they think they will immediately lose this benefit on independence.
    I am going to print this off Derek for those who are not internet savvy and email it to those who are.
    Another inconvenient truth for the current Westminster public school boys is that pensioners are actually economically active and provide a significant contribution to the economy as a whole (except those who have retired to tax havens around the world).
    Cutting state pensions will result in a reduction in personal spending and apart from the extreme hardship imposed on our elderly,will make it even more necessary to cut public expenditure.A vicious rather than virtuous circle.
    Like the idea of a Scottish Pension Pot,which could be linked to the oil fund….this would be a big sell for independence to the gray hairs (or no hairs) and reaffirm our committment to future generations.
    Brilliant Derek…you’re the man!

  14. O/T
    Lots of grumpy people commenting on The Heralds story on iScotland to lose the BBC according to a Hyacinth Bucket lookalike. Seems like 99% of comments suggest good riddance. How did it ever come to this as someone with fond memories, growing up with this institution, it makes me sad, but hey, I’m with the 99%.

    • majormacbloodnok

      Perhaps we’re not genetically advanced enough to appreciate the BBC?

      • Unionists frequently claim that they have never said that Scotland is too wee, too poor, and too stupid to be successful as an independent nation.

        However we have seen at first hand this week Cameron in a speech claiming independent Scotland wouldn’t have have “broad shoulders” and “deep pockets” to run its oil and gas industry (funny how little Norway (5m people same as Scotland) does a far better job of it than UK), and now to add insult to injury a Scot no less (a proud Scot as she likes to style herself) makes a stupid racially motivated claim that Scots “aren’t genetically programmed to make political decisions”.

        So there you have the proof that the unionists cannot deny any longer that they have claimed that independent Scotland would be too wee, too poor, and too stupid to be successful as an independent nation.

        The Project Fear attempt to brainwash the Scots into not voting YES has reached a new low.

  15. Add Royal Mail to the burgeoning business of Government ” off balance sheet ” Pensions

    George Osborne statement ” The transfer of the £28billion of assets from Royal Mail pension fund to the Exchequer will free it (RM) from its crippling debts , ensure the pensions of hard working staff are paid and help to bring in new private sector investment .Some would have been tempted to spend this windfall . I do not propose to spend . Instead , I have used it to pay off debt .” Self righteous words some would say in the mould of Gordon Brown .

    What was left unsaid was the treatment of the RM £35billion pension liability .

    This Pension liability was treated as an “off balance sheet” transaction so was not added to the official national accounts. Instead the liability totalling £35billion is paid over the next 40/50 years by UK taxpayers .

    Funny thing is that a similar scheme proposed in 2008 by Gordon Brown was criticised at the time by Alan Duncan (Conservative)
    ” As Stealing the assets whilst taking out an enormous mortgage to cover pension liabilities for 50 years as nothing more than a massive accounting scam”

    Nice one Gideon . Captain Bob and Bernie Madoff would surely have approved of this financial wizardry .
    The investors piling into the Royal Mail share offering certainly had an eye for a bargain . Shame about the taxpayer .

  16. What’s always bothers me about my public sector pension is why I do not get a yearly statement producing its current value?I get regular updates from my Tesco loyalty card and even Costa but my pension zilch.
    I think it might have been yourself Derek, who interviewed (sometime in the last two years)an expert in pensions. The expert explained how their pension group put the profits into the pension first THEN addressed the shareholders.Their pension group was backed by the Govt but not run by the Govt and they were hoping to break into the British pension scheme market. The expert was I’m pretty sure Norwegian.
    I’ve come to the conclusion over the years, when you read the tiny print at the bottom of the page, at the back of most financial institutions in Britain, whether it be pensions, insurance companies, mortgage lenders or car finance, solar panel or double glazing finance, when you pare it back it’s the same old clique who run them all -the banks who play merry go round with the treasury , almost like a massive Ponzi scheme.
    Ps. If it was you Derek, you don’t still have the guys details do you, imagine if we all decided to invest our pensions in a Norwegian scheme, immediately! Maybe Gideon would then be able to see how not having a currency union works out for him…

    • There are various public pension schemes, some of them running very large deficits indeed. The practice of paying retirees on a percentage of their final salary, rather than the value of their own contributions plus uplift (from investment in the stock market), means the funds were always likely to outstrip their ability to pay.

      The expectation was that taxpayers would step in to fund these generous settlements. When the pensions of taxpayers are evaporating, that doesn’t look like a sound political calculation. I’d expect future governments to bite the bullet and convert these schemes to contributions, rather than unfunded commitments.

      The BBC is a case in point – current deficit of £2 billion, so increasing amounts of license fee and commercial income needing to go to fund the commitments made to retired staff.

  17. Reblogged this on Aberdonian for Indy and commented:
    This needs to go out to all pensioners planning to vote no….

  18. Alexander Mckirdy

    I ask you all to keep an eye on what is happening in Detroit, USA they are trying to go bankrupt thus avoiding paying pensions out to pensioners, it is still going through the courts at present, but if they are allowed to go bankrupt, then this will likely happen all over the world

  19. Continually lying to us about this and raiding the pot. Scotland’s pensioners must realize that staying with a failed and chronically corrupt system of Government in Westminster can only lead to loss of the last financial buffer they have in the lifetime.

  20. […] tax, restricted eligibility etc is certain. The next financial crisis will be a pension crisis Pensions: Britain?s Ponzi Scheme | Derek Bateman Broadcaster1 Looks like Dave's "broad shoulders" are not gonna be broad enough. UK mis-management […]

  21. The ‘Wings’ appeal could buy up the Scotsman. Responsible, honest journalism could return to Scotland. Mr Bateman get in touch with Rev Stu. Rev Stu could be Chairman. Mr Bateman could be Editor. Go for it. Now.
    Everything is possible.

    Vote YES

  22. ConDems sold off the Royal Mail cheap (lost £3Billion) and have not paid off the Deficit. The unelected ConDems and their wealthy mates in the financial sector will have made a killing and made £Millions. It was a transfer of National assets once again, to the the wealth City of London. The Tory bankers and crooks. The most vulnerable in Briain are starving and dying being killed off. Despicable.

  23. I live in England, and if Scotland becomes independent I wish I could come with you:-; I’m in my late 40s, have paid national insurance contributions for the best part of 30 years, and am now wondering whether I’ll get a state pension at all at the end of it. I’d like my contributions back so I could invest them elsewhere for my retirement, but I won’t hold my breath on that one. Disgraceful behaviour by the government, it makes me ashamed to be English.

  24. Good well written article as usual.
    I have known about the UK pension deficit, for quite a long time, have posted on it in various sites and blocks. Yet, no one every showed any interest, I think they thought I was just talking B/S.

    Hopefully, they will listen more to you than they did me. One thing I would point out is that while pension funding is in total meltdown, and is coming to a head sooner than later. There are very many other serious financial issues bearing down on the Uk that will bear further pressure on pensions, benefits, NHS, and everything else in the UK. The question for me is, can an Independent AFFORD to be tied to Sterling at all?



  27. Derek Bateman – your article contains one deception or outright lie:

    “The truth is that there is no mammoth national pension pot earning interest through judicious investments in order to pay out to retired public sector workers and the general population of old age pensioners.”

    and related to it this quote from Reform Scotland@:
    “Politicians have been engaged in a conspiracy of silence on this issue and they must now begin to be more open about the situation in which we find ourselves”

    A lot of truth: The pension challenge is immense and will be costly.

    And then ends with something Stalin would have been proud to propose: stealing private pensions to redistribute…

    Got to set you straight on this: the national pension scheme was ALWAYS intended to pay out your and my contributions to those currently in retirement. This is not a conspiracy, it was publically and clearly stated at the time and is common knowledge now.

    To say that politicians are refusing to talk about the issue is to ignore the many attempts by politicians of all parties to discuss the issue and to attempt to deal with it. The problem is not that they are refusing to talk about it, the problem is that to deal with it will require raising taxes or forcing people to pay into pension schemes. Neither of these will be popular and the last will be impossible for the vast majority of the population who cannot afford to survive, let alone save.

    You are right to draw attention to the huge amounts of money that will have to be found/created/seized to resolve future pension needs. I recently described this as a nightmare. It possibly will require as radical change as the setting up of the welfare state and will impact every person regardless of status.

    However, stealing from the poor and slightly better than poor to redistribute wealth is unlikely to be a popular idea. Perhaps I’m wrong. If this was done openly and with majority public support it would possibly be better than raising taxes. After all, why should the extremely rich live off their savings untouched by the poverty that ensnares the rest of us?

  28. This article is frankly a joke. The yes campaign focuses to much on their perceived wrongs and offer no tangible solutions. Case in point, the SNP has still failed to deliver a workable fiscal policy with no defined tax rates to support their plans and no concrete assurances over the future of the currency.

  29. This pensions apartheid has been around a long time. It was designed by Labour (Gordo removing £5bn every year from private sector provision) ensuring defined benefit could no longer be afforded by the 80% of the working population who do not work for the Government. The remaining 20% hang onto defined benefit at any cost. Regardless of the debt they are heaping upon the next generation or the amount of public sector spending cuts they make elsewhere. Pay more = get less.

    They are entirely unsustainable and they know it. Do a bit of research into how the “employers contribution” (ie the tax payer) has balloned in the last 10 years. Public money which is redistributed to maintain DB provision for the Government and it’s employees that the remaining 80% had taken away for ever.

    You appear to have a good understanding of the problem but are sadly mistaken if you think that it is an argument to support independence.

    Whilst Rome was burning on the private sector our “honourable” MP’s were voting on an improvement to thie own DB scheme. To increase the DB accrual rate from 50th’s to 40th’s with “any additional cost to be borne by the exchequer” (ie you and I). That shameful vote took place in 2001. Whilst the motion was unsurprisingly passed only one party voted unanimously YES. That was (and I apologise for bursting your bubble) the SNP led by Alex Salmond.

    Don’t get me wrong. I’m not anti SNP nor have I made my mind up about the independence vote. Labour, Cons, Lib Dems all in it together WITH the SNP when it comes to heaping debt upon our children for personal financial gain. It’s just another unfortunate reality you will no doubt refuse to accept if it doesn’t support your particular agenda.

    Show me where the Scottish Parliament has campaigned against the massive salary increase tabled for MP’s in Westminster. Show me where they have pointed out that IPSA only chose to benchmark MP’s pensions against public sector DB provision?

    They do none of those things.

    An MSP’s salary is linked by statute to 87.5% of a Westminster MP’s salary, with pension benfits to match.

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