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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The Guardian…of Cameron’s Little England


We have two subscriptions to the Guardian in my house because we like to think it aligns with our world view – in broad terms – and since we have ipads, it is logical to endow them with double their entitlement in order to carry it with us. To be frank I don’t find much of Scottish interest in the paper. It has everything else I like and some great writers but I pretty much know if I want to discover something about my country I can skip it. That was ever the case. I remember their Scotland correspondent in the eighties and nineties wrote maybe one or two pieces a week and they were happy to print a retrospective item catching up with something that had been published everywhere else 24 hours previously.

He was a grand man to represent you in the Scottish capital – a little like Alex Douglas-Home to look at, always in a Harris Tweed sports jacket, drove a Racing Green open top two-seater Morgan – big house in Midlothian, place in Grantown-on-Spey – and in the Jinglin’ Geordie in Fleshmarket Close at lunchtime would order a dram of Te Bheag which he pronounced Tea Bag, only with a Morningside inflection on “bag” turning the vowel sound into “eh”. As a young reporter in a hurry I loved his insouciance. If I asked: “What are you doing on the hydro electric story, John?” He would say: “I’ll give it to them tomorrow. There’s too much other news today.”

It is one explanation why I have an affection for the Guardian all these years later but the real one is that it is the only daily newspaper published which has a social conscience and often wears its heart on its sleeve. In a sea of neo-liberal, establishment toe-kissers, it is a media oasis of alternative thinking and challenging views. It is Channel 4 News to the BBC News at Ten. it has printed writers with no connection with Scotland finding common cause with Scottish democrats protesting against the British status quo, some of whom indicate they would vote Yes, given the chance. They have seen the potential for ending the stasis that blocks progress in the UK, in voting systems, accountability, equality, social mobility and patronage that shines through the Yes agenda and they have imagined how it could be a beacon for change across the country.

They don’t do much on Scotland but what they have done has been inspiring and validating. Until today. In Saturday’s edition of the Guardian they produced a leader column that could have appeared in the Telegraph such was its casual glee at what it translates as Yes getting its comeuppance.  Its entire tone could hardly contain its grim satisfaction.

It was dismaying to find a UKIP-inspired Little Englander editorial which couldn’t disguise its Unionist frisson that the “panglossian’ Salmond was finding  his “smiley” version of independence challenged because, according to the author, it had gone “unchallenged” . Perhaps the Guardian has missed the 20-odd British government reports or the entire Better Together campaign or its multi-million funding base or interventions by the European Commission and the Council and the Prime Minister of Spain, the three-year histrionics at Holyrood, reports by every committee in both Houses of Parliament, CBI objections, talks at NATO and visits by half the British Cabinet. If so, did they ever replace my drinking chum with the drop-head Morgan and are utterly uneducated about events in the far north?

Salmond’s plan, backed by 670 pages of background and Q and A – many times more than any UK Government or party ever attempts – is dismissed by the Guardian as a “pretend version”, neatly omitting the fact that Salmond’s desire for independence was in his manifesto when he won a majority of seats at Holyrood, therefore it is endorsed by the people of Scotland – still inhabitants of the United Kingdom as far as I can see. Salmond’s view cannot be maintained any longer it seems as the UK gets tough. How the British and their London media luvvies revel in the idea that they have the upper hand. It sounds like they are fighting Jerry all over again,this time in the pages of the Guardian. There is no questioning of the approach or motivation of the three Unionist parties, just delight that they have changed the debate and in essence struck back, suggesting the Little Englanders at the Guardian have been quietly resenting the success of a democratic movement which they have no chance of emulating since all their eggs are in a comatose Labour basket. No, “this new toughness must be applauded”, trumpets David Cameron’s new recruits. Get tough with the dissidents, it means. Slap them down. Show em who’s boss. We’re fed up pretending to be on side for this. The truth is we’re as backward and self-centred as any Tory – just like Labour – and we don’t really want change. It’s much too comfortable down here. 

It even goes for the Daily Mail unsubstantiated personal slight. Salmond always plays the man, we’re told. Do they mean the man who was subject to calculated character assassination at Holyrood, who was likened to his face to Robert Mugabe on Newsnight, who as we have seen in recent days, has been treated like a a petty criminal by BBC interviewers? When did Salmond go for the man without the politics? This is prejudice, the seeping loathing drip-fed by the Salmond-hating tabloids, is swallowed by the Guardian and reprinted without reference or justification.

But the most telling part of this revisionist rant is this section:

Mr Osborne’s case was made politically stronger by the fact it was tightly co-ordinated with Labour and the Liberal Democrats. It remains to be seen how the one in three Scots who say their minds are not yet made up will respond. The likelihood in the long term is probably that the undecideds will divide much as the decideds have done. Taken together with Mr Cameron’s speech last week, Mr Osborne’s helps give the pro-union parties more standing to make a reasoned case in the face of the SNP’s predictable sneering and occasional evasions.

 To any Scot who has followed this from the beginning, the idea that it is the Yes side that sneered or evaded will be richly humorous. No sensate human let alone a thinking journalist with an iota of knowledge could write that and mean it. It defies the facts in which Scots have been told – by their own UK government – that they can’t survive without subsidy, they can’t defend their own country,they are so useless neither the EU nor NATO will want them, they have made no contribution to their own currency and if the don’t settle the deal on time the result of their legal referendum will be ignored. Who’s sneering?

And is the Guardian really saying that the UK’s balance of trade doubling is fine? That the increased borrowing costs of this will be worth paying? That placing a frontier when none is necessary is justified? Or that business should be penalised? It would have been more courageous if the article had said this was the right economic decision and was, in the paper’s view, not just part of a political campaign and therefore ultimately, meaningless.

But the real gaffe in this student thesis is to think that bringing together the main parties as one is a masterstroke. The tight co-ordination is the death-knell of liberal politics in Britain. It says that a united campaign to resist democracy in Scotland overrides every other issue where these parties disagree. More important than welfare cuts, more important than youth unemployment, bankers bonuses, London feather-bedding and Trident replacement. On this, they stand united. On all else they disagree. And the Guardian thinks this is good news for Labour? Aligning with the Tories on behalf of the British state Guardian readers want to reform is an historic miscalculation by lightweights blinded by hatred of nationalism and not grasping its significance. It is betrayal of the roots and principles of Labour, such as they are. Now the Guardian is on side with them and with Cameron’s centralising, faux-imperial, anti-self determination zealots. Somebody, somewhere made a mistake and let out of the bag what many of us suspect that even in the metropolitan, liberal-badged London media salon, a robust anti-Scottish prejudice lurks just beneath the surface.

For the Guardian, read Telegraph…read Times… read Mail. The London media, another reason to vote Yes.

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