UK makes dramatic pension changes

The UK sees their system of government as being in big trouble. 

Today they made changes that attempt to turn the tide for the UK. For starts the UK slashes 490,000 jobs amid deep budget cuts

The British government announced deep budget cuts Wednesday, as it tries to fight what its finance minister called "the largest structural budget deficit in Europe."

The changes will include "ruthless privatization" and will leave "no stone unturned in our search for waste," Chancellor George Osborne told lawmakers in the House of Commons.

The government will slash 490,000 jobs from the public payroll over four years, he said.
But the cuts will also be guided by the principle of "fairness," he said, adding that "those with the broadest shoulders will bear the greatest burden."

He specifically named banks when saying "those with the most should pay the most," amid widespread British anger at bankers.

But Osborne's predecessor warned against trying to cut the deficit too quickly.

"If the private sector doesn't come in and take [government spending's] place, you run the risk of derailing the economy," said Alistair Darling, who was chancellor until the Labour Party lost elections in May.

The long-awaited cuts follow a "comprehensive spending review" by the new British government, which came to power in May.

Paying interest on government debt currently costs 44 billion pounds ($69 billion) a year, the Treasury said in outlining the spending review -- more than defense, policing, housing or transportation.

The government forecasts public spending peaking this year, then falling to 2003-04 levels by 2015-16. That will still not quite balance the budget, it predicts, but will come close to doing so.
It announced deep cuts to the defense budget on Tuesday, with the armed forces losing 10 percent of uniformed personnel in the next five years.

As we have seen around the world the biggest costs associated with running governments is the cost of the compensation packages for the Protected Classes.

The first place to start in cutting the cost of government is the gold-plated benefit packages for the public sector. In North America and in Europe the biggest challenge has been that the politicians have given themselves the best pensions of all. 

Cut MP Pensions 

Politicians know that any changes they put onto the peon class will affect their pensions. Therefore no pension changes have been made in most jurisdictions because it will affect the  retirement packages of the politicos. So it is promising to see that first place the UK government has started is at the top. MPs’ final salary pension scheme to end

During the Comprehensive Spending Review, Chancellor George Osborne told the Commons that the current final salary scheme for members of parliament will have to end.

Osborne said: “It is clear that the current final salary pension terms for MPs are not sustainable and we anticipate that the current scheme will have to end."

Tom McPhail, head of pensions research at Hargreaves Lansdown, said: “I think what he was doing there was demonstrating that the MPs will be the first wave of public servants to face reforms of their pensions.

“He was seeking to diffuse any criticism Sutton’s review and making it clear he is putting MPs in the front line of any suffering that is going to be experience by publically paid employees in respect to their pension rights.”

 The Telegraph reports that:

It was “not sustainable” for the generous final salary scheme, which means MPs can retire on more than £30,000-a-year after only 20 years’ service, to be continued.

At present, MPs are able to contribute as much as 12 per cent of their salary into the fund. 
The Treasury is paying out more than £8 million a year for their pensions – the equivalent of around 18 per cent of their salaries. MPs qualify for the pension even if they are voted out of office after only a few years.

In a report this summer, the Senior Salaries Review Body recommended that MPs’ pensions be switched from final salary to an amount based on their average career earnings.
It also suggested that the pension age be increased from 65 to 68, with a contribution rate of 5.5 per cent of pay.

Mr Osborne said: “It is clear that the current final salary pension terms for MPs are not sustainable and we anticipate that the current scheme will have to end.”

 Higher Pension Age
We have seen the protests that have rocked France over moving the pension age from 60 to 62. The UK has taken the dramatic move of increasing the age of retirement faster than previously planned.

State pension age will rise to 66 by 2020

All Britons under 57 will have to wait until age 66 before they receive their state pension, Chancellor George Osborne confirmed today.

The pension age for both men and women will rise to 66 by 2020.

It marks a considerable acceleration from the 2026 target set by Gordon Brown's Labour party before this year's General Election but is slower than the 2016 date hinted at by the Coalition earlier this year.

Announced as part of the cuts in the Government's Comprehensive Spending Review, the new reforms mean that all Britons born after 6 April 1954 will have to wait until they reach 66 before claiming the state pension.

For women, the rises will happen far more rapidly than expected. From 2016, the women's state pension age be increased so that it reaches 65 (equal to the male age) by November 2018.

Then, between 2018 and 2020, the state pension age for both men and women will gradually rise to 66.He said 'Raising the state pension age is what many countries are now doing. It will save over £5bn a year.'

Healthier lifestyles better medical care now sees the average British male live 77 years, and female until 81.

Back when the state pension age was set at its current 65 level in 1925, only a third of men and 40% of women were expected to live to see their 65th birthday.

Official statistics project that by 2034 the number of people aged 85 and over will be 2.5 times larger than in 2009, reaching 3.5m and accounting for 5% of the UK population.

Public spending has already rocketed by nearly £14bn since 2005/06 when the 'babyboomer' generation of post-war children started to retire. It had been expected to increase by another £4bn by 2012.

Higher Public Sector Pension Contributions

The public sector is expected to shoulder a fairer share of the cost of their gold-plated pensions. Public sector faces higher pension contributions

Workers in public sector pension schemes are likely to be asked to make higher contributions to their retirement funds in the future.  

There has been much public anger over the size of pensions that some of the higher paid in the public sector – such as politicians – receive in retirement.

The reach of public sector pension schemes in the UK is significant, with about one in five people entitled to some form of public service pension.

However, the rising life expectancy over the last few decades has stretched the public sector pension system to breaking point.

Somebody retiring now can expect to spend 40% of their adult life in retirement.

"This has driven up costs - by a third in the past decade - and these extra costs have fallen almost entirely to taxpayers," said Lord Hutton.

"The final salary link in public service pensions is inherently unfair and can lead to high flyers getting almost twice as much back in pensions than those on more modest earnings for the same amount of pension contributions."

These are the types of changes that need to be made to public sector compensation. It will be another matter to see if they are allowed to pass. Based on the protests in France the UK may see it own bit of pension outrage. Survey finds half of UK public sector workers ‘prepared to strike’

The public sector may have no alternative to major protests if they want to stay on the taxpayer funded gravy train. But then again the MP's may be too happy to acquiesce if they think they can keep their pensions as well.

Are the MP's and public sector in the same boat? In any professional services business this type of transaction would be considered conflict of interest.

Bill Tufts 

Fair Pensions For All