So Spud gives us an overview of the pensions system:
These were once common. They were normal in big business as well as in government, but business, as I will note in a moment, has now retreated from them. They are now almost only found in the state sector: the NHS, teachers, local government, and the civil service, plus the armed forces, all enjoy pensions of this sort. Now, these are generally safe. They’re not entirely risk-free, and if you have a defined benefit pension from a private sector employer, that is definitely not risk-free because, of course, the employer could go bust and there might be funds owing to the pension fund at the time that they did so, and that can prejudice future payments as some people have found for their costs, albeit the government has set up a fund to try and help people in that situation. But the point is, this overall is a great pension arrangement, but fewer and fewer people are enjoying it.
So what are they getting instead? Well, because businesses realised how expensive defined benefit pensions were, they basically walked away from them.
They walked away because of tax changes – the end of the pension credit for example – and the insistence by Brown that – for regulatory reasons, of course of course – they invest in Gilts at those lovely 1% interest rates.
You know, peopple change their behaviour if tax changes?
Defined pensions schemes with zero money in the pot, despite your contributions.
Maybe this is a good deal for someone approaching retirement. For a recent graduate employee it is a mad risk.
Aren’t the largest public sector pension schemes (NHS, teachers, Forces and Civil Service) entirely unfunded? That is to say they are Ponzi schemes, they pay todays benefits out of todays contributions and own no assets beyond a cash float? How exactly does that become ‘safe’ in Spudworld? I’d say its actually pretty risky. You have the risk that for some reason the number of workers contributing reduces and the income doesn’t meet the expenditure, and then you have the political risk that should a deficit appear the rest of society decides not to bail it out, because that decision lies in the hands of the politicians and the voters. Either way the fate of a public sector pension lies outside of the person expecting to receive it.
the entirety of state pension is a ponzi scheme right across the board, it’s funded ny current taxpayers.
I’d guess that you could say they were ‘safe’ because the poor old taxpayer is on the hook for making-good the payments… And politicians and other public ‘servants’ who are the recipients of such munificence are going to make damned-sure that the pensions are maintained at the cost of other ‘less important’ public expenditure.
But that ‘guarantee’ only runs as far as the voters are prepared to accept. There are after all 48m voters. Those in receipt of public pensions (or expecting to get one) are a minority. One could easily imagine a situation whereby non-public sector workers are getting less and less pension entitlements, and public sector pensioners are living the life of Riley on the back of non-public sector taxes (because the current contributions aren’t enough to pay current pensioners and the taxpayer is bailing the fund out) At some point there would end up being an election over the issue and public sector pension would end up being cut down to size. The risk of this happening is not zero. For someone entering the public sector workforce now there has got to be a significant risk they might not get the occupational pension they think they will, just as there’s a significant risk they won’t get a State pension either.
There’s another Jim? – not in my world
This was one of the central points of the Great Peter Bauer – also known as the ‘Anti-Murphy’
In his seminal; ‘Inequality, The Third World and economic delusion’ he made the point regarding Public Sector pensions that while they were useful they were dependent on the willingness or ability of governments to honour them. Even assuming the former was there, which given extreme hostility to diversity and Big Trans is by no means a given then within two decades they won’t be able to afford to pay them so they are by no means a sure thing.
“that decision lies in the hands of the politicians and the voters”
Theyv always relied on the civil service and their lawyer friends to make sure the pesky voters don’t have any say in the matter.
Nigel will have to do very well to overturn that.
In Spud World he just debases everybody else’s money to pay them. Simple’s.
Sorry to be OT but a few days ago some one mentioned the Guardian being absent from the news stand in the shop. I’ve just been to Asda and I checked the news stand on the way out. No Guardian there either. Should we read any significance into this? Are they in some kind of trouble or has the print version just been discontinued?
Print edition is still available in Crouch End. Of course it is.
Crouch End? Isn’t that where Stephen King set one of his Lovecraftian horror short stories?
If he didn’t he should have. Mind you, I wouldn’t expect him to know where Crouch End is.
I doubt anything has changed, but when I was doing a project for the government and based in DCMS their press office and DCMS personnel combined probably bought enough copies to sustain a print run on their own. Now spread that across the whole of government.
Could simply be Zero Sales there…
Any Guardianista shopping at ASDA has already been a Good Virtue Signaller and has the Subscription to the electronic version.
Anyone else isn’t interested in the Novya Pravda ( UK ed.).
Don’t worry; you will get a compulsory slug of Guardianism every time you use ChatNBG.
That was me. Last week: no Guardian in Co-op Whitby. Couple of days ago: no Guardian in Spar petrol station Whitby. Yesterday: no Guardian in Asda Sheffield. All during normal hours, not at the end of the day.
State defined-benefit pensions will end, because they have to end.
Not if MMT rides to the rescue, surely? They’ll still get their pounds; it’s just that they’ll be worth the equivalent number of yen.
Same difference Norman.
Unfortunately they’re pensions are index-linked, so the retired lanyard-wearers are even protected from the disaster that is MMT.
Not really. If the currency is worthless, having elebenty trillion units of it doesn’t make any difference if you can’t can buy anything with it. Index linking protects you from ‘normal’ inflation, it doesn’t protect you from a complete debasement of the currency
Indeed. Opportunities in Zimbabwe. Mind you, if you go to the bakery with one barrowload of currency and the retired public servant goes with two, he’ll outbid you for that loaf of stale bread.
Not really, because the man with an egg gets the stale loaf instead.
Well, a defined benefit scheme needs something around 25% employers contributuion, so it’s a trade off on money now vs pension later in all except the taxpayer funded state sector. Where both seems to be the case 🙁
On that point it’s instructive to notice that civil service jobs has 28.97% employer’s pension contributions. Remember that when you see jobs listed at eg £40,000 – it’s actually £52,000.
It’s not an actual employer contribution – it’s only notional. It’s a calculation of what the equivalent would have to be in the private sector to provide the same pension.
And that’s for, what, 15 hours a week actual work for a full-time government employee? Or am I over-optimistic there?
Well, my doctor daughter genuinely works her little socks off, but I think your observation stands for the bulk of public employees.
Oh yeah? And where does that extra £12,000 go? Back in the taxpayer’s pocket? Because that’s where it came from. ‘Cept it didn’t: it’s all notional bollocks. All income tax, NI and pension contributions (arguably, all taxes) paid by the public sector are simply discounts on their gross pay: no more, no less. It’s how you can advertise a high public sector salary without ever having to have the money to pay it in full.
Unlike the private sector, which actually has to generate this wealth, and then give it away.
They also got more expensive because (i) Mrs T insisted they all offer a widow’s pension, and (ii) the govt (hers? Dunno) insisted that pension rights left behind were preserved when you left a job.
Good ideas in themselves, but nothing is ever ‘in itself’. It incurs costs and that changes incentives.
This is even better Tim on the Telegraph pointing out the lack of unemployed people returning to the workforce:
The Telegraph has reported this morning that:
Labour is struggling to get people off benefits and back into work after the number of
Just one in 14 people (6.9pc) on benefits moved from welfare into the workforce each month on average from January to September in 2025, according to official statistics. This is the lowest level since 2019.
It really is time the Reform-backing, Labour-bashing Telegraph understood a few basic things about the world out there. Let me list a few:
This is true because increasingly it pays people not to work and survive through the black economy and working illegally.
Really – I thought the population reduction angle was more coming from the likes of Monbiot or the environmentalist movement? Which groups are calling for ‘Climate strikes’ or post birth abortion??
I think we should revert back to slide rules, pen and paper. I know you’re a great fan of windmills. And indeed the Greens and their fellow travellers on the Left are genuinely obsessed with people using bicycles. An almost anti-nomian stance
Yes – it’s designed to increase productivity and enable people to do other things
They are albeit overall employment remains similar – but patterns of employment have changed
Apparently if the people who currently exist on benefits are simply provided with the necessary AI skills (Free of charge) then they’ll morph into productive beings – quite how Panglossian or stupid one has to be to believe this is a matter of conjecture.
His kids can’t find jobs which of course needs him to receive a suitable sinecure. Also, since when did he ever evidence either ‘rote learning’ or ‘critical thinking’?
Then let me note:
I’m not sure on what planet this government, the worst in human history, can be considered ‘pro-business’
Blatant bullshit by and large. Thanks to the Brown bonanza (which he backed) and the evils of ‘Net Zero, DEI and LGBT Alphabet Soup – combined fields which shouldn’t absorb a single person in employment we have huge swathes of people employed in activities which are utterly useless. This deadwood prevents investment in positions which actively would provide economic growth. Additionally numerous sectors still report massive Labour shortfalls across all parts of the economy
As you say, AI frees people up to do something more valuable.
The only thing designed to “get rid of people” is the Assisted Suicide Bill.
That would be the State education system that he idolises?
I’ve been retired for quite some time, but I worked in the pension business in the US for decades. The decline in private DB plans was largely due to the constant “tweaking” by the Feds. Most of it was well intentioned, but they definitely had no sense of how the costs and regulatory burden kept piling up.
…and this is why the road to hell is paved with good intentions.
Esteban
In the UK it was Gordon Brown who stole the money with the abolition of the Dividend Tax Credit but we had something similar in terms of Regulatory burden. The costs of compliance are almost never considered by politicians, especially those of a Left wing disposition – which is why I think an end to the secret ballot is something of an inevitability at this point. People voting for Labour, Corbynites, Greens and so on need to really pay for that choice. Socialism isn’t a free lunch and actions should have consequences.
It was not *just* the abolition of the dividend tax credit, New Labour added a slew of extra costs – including an insurance scheme paid for by the viable pension funds to partially bail out the members of weaker pension schemes bankrupted by New Labour’s other impositions – some of which cost more in additional admin costs than they did in additional benefits to pensioners. For instance my ex-employer’s DB scheme has recently had to carry out a “pension equalisation” calculation for the GMP (a completely norional subdivision of my pension which was far larger than said GMP) to see if I should have been entitled to more or less GMP if I was the opposite sex for each year of my employment after GMP was invented and has paid me a small sum plus interest which is less than it cost to do the calculation – this is insane because the sum it paid me each year was based on my total salary at leaving and would not have changed if GMP was doubled or halved.
Rather more important was Brown’s decision to impose a 100% tax on small occupational pensions (which Rachel from Customer Complaints has increased to 120%). Anyone entitled to a state pension of £5 a week gets a Pension Credit to increase total weekly income to £227.10 (more if you’re married and your spouse gets less than £129.50): so any occupational pension of £51 a week or less is completely wiped out (100% tax) even if one is below the tax threshhold and Rachel has decreed that tax takes another 20% of anything above the tax threshhold – unless one is completely dependant on the state.
It’s been often noted that in the US the largest increase in employment over the past 45 years was by new companies that grew big. This roughly coincides with the widespread implementation of defined contribution plans. Most of these new businesses never offered a pension plan to begin with, with the regulatory burden having much to do with that decision. However, that’s not the same a stopped offering.
As for those firms that were in existence more than 45 years ago and supported pension plans back then, and are still operating today (Ford, GM, GE, among many others), what portion actually stopped offering pensions? I suspect that many firms that provided pensions two generations ago still do.
This is a long post so I’ll edit it down but it’s arguably an all time classic:
Straight after Tim leaves the post:
So what are they getting instead? Well, because businesses realised how expensive defined benefit pensions were, they basically walked away from them. They’ve done so in this century. For the last 25 years or so, employers have shifted away from this type of defined benefit pension to a defined contribution pension, and the arrangement is fundamentally different.
You and your employer will be paying into a defined contribution pension scheme. Only you will be paying in if you’re self-employed, of course. And that money will be invested on your behalf by a fund manager. There will be no guaranteed return. All the risk lies with you, and this is the fundamental difference between a defined benefit pension scheme and a defined contribution benefit scheme.
No mention of arguably the greatest criminal in the history of the country (At least in terms of theft) Gordon Brown. He stole the private sector’s pensions to fund a Client state which still props up Labour and other Left wing parties across the board. His second paragraph is actually fairly accurate – but he neglects to mention he, as someone who backed Left wing parties is directly responsible for this- which is why a Socialist tax is an essential measure.
In a defined benefit pension scheme, the risk rests with the employer. They’ve given a guarantee.
In a defined contribution scheme you are dependent upon the vagaries and fortunes of the market to deliver you an outcome you desire. If there’s a market crash, just at the moment you are about to retire, your pension could crash with it, and that’s what’s important. You have no recourse to your employer, or the pension manager, or anyone else. They will claim the decisions made were all by you, even though you will be remarkably uninformed to make them in many cases, because most people are not long-term pension managers.
There is a danger in this, and there’s an immediate danger at this moment. We know we are facing an AI bubble. We know that there is a risk of banking instability as a result. We know there’s a risk of a financial crisis; we’re already seeing the signs of this. Gold is going through the roof in terms of value, and that’s always an indicator that a recession might be coming. In this situation, defined contribution pension values could collapse, and the only mitigation is that you move your money to safer assets, but you would have to decide to do that.
I would actually say this is among his best paragraphs ever – it’s a fair summary of the scenario facing a lot of people and is in fact one of the greatest ticking timebombs in UK politics. What happens to defined contribution pensioners in the event of a sustained stock market correction? Nevertheless he then explodes in spectacular fashion.
But overall, the problem is actually one of what’s underneath these pensions, and you need to understand that to make that decision about whether you want to reallocate funds.
What do pensions actually invest in? They buy shares. They buy property. Almost always secondhand property; in other words, not new ones. They buy corporate bonds, and they buy government bonds.
Now, government bonds are usually good value investments, but they can change in value quite considerably depending on the way in which interest rates go, so even they are not guaranteed to give a return inside a defined contribution pension fund.
I have 30 funds in my ISA across multiple countries and sectors (Yes -too many probably) but the SIPP I have has a similar level of diversification. UK Government bonds, other than Russia and Indonesia are the equal third worst performers of any of those funds (Chinese Smaller companies on a par) – the notion that’s ‘Good value’ suggest the possibility of an ‘Inverse Murphy’ ETF or Portfolio approach.
Shares create no new value in the economy, almost invariably. Why? Because shares are issued either as part of merger and acquisition activity. In other words, one company buying another one, which does not create new value in terms of new jobs, usually it in fact destroys jobs, and it does not fund new investment.
They create far more value than Welfare expenditure – and even in a Merger and Acquisition there’s usually some fallout which is positive.
I’ve already mentioned that the properties that most pension funds buy are already in existence; therefore, new jobs are not created.
Maintenance of properties employs no people whatsoever – no changes to properties like refurbishments can be contemplated ever. No new furniture. No repainting. No repairs. ely must be different to my memory of it??
And that’s also true of corporate bonds. Most of the bonds issued by large companies, the AI sector at the moment is an exception, but most of the bonds issued by large companies are put into issue to pay for corporate takeovers. There is very little investment funded by corporate bonds; some, but not much.
I must let my Debt Capital Markets team know to add this guy to their Bloomberg feed.
And the point about this is that these investments do not therefore fund real investment. They do not create value in the economy. They don’t create jobs. They don’t do anything in terms of productive investment.
And new shares are, anyway, incredibly rare now; they usually only represent the original owners of a company bringing their venture to market and then selling out, whilst corporate bonds are usually about mergers.
One wonders if this was run through the prism of ‘Quantum economics’ for validation.
Just batshit crazy – really sectionable stuff…
I’m not sure he even believes it any more. It’s just a cut and paste smokescreen for intended theft.
“Gold is going through the roof in terms of value, and that’s always an indicator that a recession might be coming”
The value of gold doesn’t change much in the medium/long term. What changes is its nominal price.
The reason god is shooting up is that investors are expecting governments around the world to print or borrow huge amounts of money and spunk it up a wall, so boosting inflation.
Yes, that will probably also lead to a recession, but it’s the expected inflation that causes gold prices to rise.
All chat about what will happen in thirty years time is delusional. Your guess is no better than mine at what the policies will be in the Islamic Republic of Great Britain.
Government bonds won’t even be allowed to pay 1% interest.
definitely not risk-free because, of course, the employer could go bust
Why does my former *employer* going bust matter? It’s if the *PENSION* *PROVIDER* goes bust that I’m in trouble. Sidcup IT Services going belly up is irrelevant, as long as Scottish Widows keeps going.
You are presumably in an *insured* pension scheme, unlike former employees of the “Daily Mirror”. The purpose of having a pension scheme that was independant of the employer was to provide protection if the employer goes bust. It is not clear whether Murphy (he of the infinite ignorance) is unaware of this or whether he assumes that the extra burdens imposed by each Labour government will more than wipe out any scheme surplus [HMRC veto any scheme surplus above a modest level that is adequate during a Consrervative govrernment but not under Brown and his imitators]
Defined benefit pensions are a crazy risk for business to carry. I had a pension with a firm I worked for in the early 80’s. I cashed it in when I left because I was young and I needed the money to buy a car. Part of it was GMP (Guaranteed Minimum Pension) which “annoyingly” couldn’t be cashed in because of the legislation. It was a trivial sounding amount giving an annual pension of £140 a year. What I didn’t realize is that GMP was contracted to compound at 8.5% for the next 40 years which meant that at age 65 it paid £3128 a year. Not massive, but a welcome top up to my other pension.
I can’t fathom how my employer though it was sensible to contract a pension that would compound at 8.5% for the next 40 years. That’s a big investment risk to take.
Sooner or later the country will go broke because its debts are unsustainable.
100% of GDP, add another 60% for the next “pandemic”.
A trillion or so in completely unfunded pensions.
Closing DBS to new state employees might delay the reckoning but won’t avert it.
Reducing state employee pension rights will migrate to contamination of all state liabilities, and gilts will take a huge hit. Any new issuance will be at eye watering yields.
In short, comrades, we’re fucked.
https://iea.org.uk/media/public-sector-pensions-cost-57bn-per-year-more-than-is-declared-finds-new-iea-research/
Defined contribution plans sound safer than a pension that might go bust with an employer.
But socking away trillions in worker-owned defined-contribution tax-deferred plans (the USA plan) has its downsides.
There is a HUGE chunk of money now sitting in funds and stocks for which promises have been made – you can take the money out in retirement as you need it, and generally it was pretax money so it grew and grew, and you then pay income tax on it based on your retired-income – BUT the chunk of money is so huge that the government has been eyeing it for quite some time, trying to figure out how to “share” in it more than was anticipated.
I’m waiting for the US to tell me that my 401k accounts will be subject to a new tax – a big tax. It’s just too much for them to pass by.
U.K. is no different
He totally lost me on this ‘episode’ when he came out with something along the lines of “we can’t trust the government to honour the state pension in the future”. Is this the same potato brained big government Spud we all know or has a he just got an AI avatar now? Oh..I get it. We can’t trust any government unless Spud is in absolute control of everything. Silly me. Same old