24 August 2006

Built To Last - Pensions

"OUR party seeks to cherish freedom, advance opportunity and nurture responsibility."

So that's the vision as set out by Cameron last week in the document "Built to Last" here's a specific proposal...

One of the most irritating things about the UK "system" is "pay as you go" pensions. In the years when I am tax resident there, I pay tens of thousands to the government in tax. In fact, I fully expect to pay over a million in tax into the system over my working life. Despite these painful outgoings, the government tells me that I can not rely on the State to look after me when I retire. Not only that but should I have provided for my future, my income is likely to be means-tested and I will have to sell assets to pay for care services. So just to go over things again, the more you put in the less you get out. With a mixture of extra taxation and additional regulation on pension funds, New Labour has almost succeeded in abolishing saving. Coupled with cheap credit, this lower propensity to save has led to a consumer spending splurge with short term benefits for the economy. Be warned that this won't continue.

The bad news keeps coming re the state pension as the start date goes up (68 is the latest edict) and the commitment to link the benefit to wages keeps getting pushed back to the less than foreseeable future (2012 is the latest false promise).

I propose a much fairer system whereby from the first three thousand pounds that you pay in income tax/NI each year is ringfenced in a "Personal Social Fund" which is maintained by the state. If you fall short of the maximum in one year you can top the fund up in future years and you can choose how the fund is invested (i.e. bonds or shares or mixture of the two). A feature of this fund is that you can decide when to purchase the annuity from your fund. The state doesn't decide when you retire, you do. It's called personal responsibility - it's not a Labour concept.

I would also use the Personal Social Fund to solve a massive problem - unpaid fines and governmental waste. For example in 2004-05, magistrates’ courts imposed financial penalties totalling £352 million; fines totalling £222 million were collected and £75 million cancelled. People receiving fines could select/be obliged to pay from their social fund. The same could apply for the cost of the following
- missed doctors appointments
- wasting police time (e.g. resisting arrest)
- damage done by you or your dependents

Used in this way, the Personal Social Fund would lead to individuals being far more accountable for their actions.

Let me know what you think? Any comments gratefully received.

PS - I've deleted the last post because the graphic was too big and I'm not very tecnically able.

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