Millions of people born in the 1970s may have to wait longer to collect their UK state pensions if a government review, which was announced this week, recommends bringing forward plans for a retirement age of 68.
The state pension age rose to 66 last year, with two further rises planned, meaning that by 2046 those born on or after April 1977 would need to wait until 68 before they can draw the benefit.
However, the review will look at bringing forward that change by eight years, so that the increase is phased in between 2037 and 2039.
The State pension system is “not sustainable” and there is “no getting away from that fact”, Minister for Social Protection Heather Humphreys has said.
Ms Humphreys also said there are “no easy options” when it comes to reforming the State pension.
The OireachtasJoint Committee on Social Protection, Community and Rural Development and the Islands said in its report, published on Wednesday, that the State pension age should not rise beyond the age of 66.
Its view runs counter to the stance of the Pensions Commission which argued the pension age should rise in steps to 67 by 2031 and then to 68 by 2039.
“Today we have 4.5 people working for every one pensioner, by 2050 we will have two people working for every pensioner,” Ms Humpreys said.
When communist Vietnam recently introduced private retirement funds, it was taking a step not only closer to capitalism, but also toward changing a young pension system that some worry may buckle if citizens get old before getting rich.
Last year marked the first time workers could put part of their paychecks into private retirement accounts, on top of the share contributed to the state pension. But analysts say bigger, systemic change is needed to enable retirement for all, even as the International Labor Organization says the state fund is robust.
Retirees would seem to be the envy of the neighborhood, receiving payouts worth 75% of their prior wages — the fifth-highest among 70 countries in the Allianz Global Pension Report 2020.
But Vietnam’s system covers just 40% of the elderly, which explains why women keep working longer there than in all but five other countries, the report shows.
At present, the state pension increases each year in line with the rising cost of living seen in the Consumer Prices Index (CPI) measure of inflation, increasing average wages, or 2.5%, whichever is highest.
As people come off furlough and return to full pay, this is recorded as a large rise in average earnings. Job losses have also affected those in low-paid work too.
This leads to a unique situation, and one which economists describe as an anomaly.
Predictions by the Bank of England suggest that average earnings could go up by 8%, hence the equivalent rise in the state pension.
The 2020 census reported that there are some 18 million pensioners in Iran, who form part of the 96% of the population who live under the poverty line. Even the regime’s own statistics advise that over 75% of pensioners cannot afford the most basic goods, like food and shelter. This is because the average pension is 25 million rials per month even though some parts of the country have a poverty rate of 100 million rials after the economic crisis caused by the pandemic.
Means tests must always turn regressive at some point in the income or wealth distribution. Because the means test withdrawal cannot exceed the benefit amount, the implicit tax can only rise with income or wealth so far. From there, it turns into a fixed sum tax, like the notorious Thatcher poll tax albeit phased-in at the lower end.
Consider the Australian Government’s Age Pension assets test, which functions as an implicit wealth tax targeted at the middle class. The single Age Pension benefit is approximately $953 a fortnight. The maximum implicit tax amount can then only be $953 per fortnight – whether you’re worth $600,000 or $600 million. The implicit tax amount payable by wealth (excluding the family home) for a single person is shown below.
Populist politicians are destroying Chile’s revolutionary pension system. In 1981 Chile became the first country to privatize social security, ending the pay-as-you-go system that had been in place since 1924 and had collapsed. Now Chile’s left wants to resurrect it.
The state-run pension system was plagued by corruption and rent-seeking since its earliest days. Among the 11,395 laws passed by the Chilean Congress between 1926 and 1963, 10,532 granted pension privileges to special-interest groups, many of them politically connected. In 1968, Chilean President Eduardo Frei, a center-left Christian Democrat, described the cronyism that plagued social security as an “absurd monstrosity” that the government couldn’t afford.
Pension privatization reversed this perverse dynamic. Instead of taxing active workers to pay pensioners through the bureaucracy, the new system, created by former Labor Minister Jose Pinera, established that 10% of the employee’s salary is transferred automatically to an account under his name at one of the Administradoras de Fondos de Pensiones, or AFP. These private pension funds compete to attract workers and invest their pensions for a fee.
This has restored the link between contributions and pension benefits by making workers responsible for saving the funds that will support them once they retire. This novel system also limited corruption and rent-seeking, and Chilean taxpayers are no longer on the hook for pension deficits, which in 1981 represented 3% of gross domestic product.
Longer life expectancy is also a problem. When the AFP system was created, men retired at 65 with an average life expectancy around 67. Women retired at the age of 60 with a life expectancy around 74. Today, the retirement ages are unchanged but life expectancy has increased to 77 for men and 83 for women. This means more years of retirement have to be funded by the same years of saving.
Chile’s privately run pension funds are in a battle for survival, reeling under the impact of billions of dollars of withdrawals as politicians and social movements attack a system once viewed as a model for the world.
Chileans have taken out more than $30 billion from their retirement savings in the past year and congress has authorized a third wave of withdrawals that could drive the figure to more than $50 billion. That would leave the pension funds with about $180 billion of equities and fixed-income assets. Many lawmakers are now calling for the whole system to be dismantled.
Created during the dictatorship of August Pinochet on the advice of free-market economists known as the Chicago Boys, the private pensions Chileans are required to fund are a bedrock of the country’s system. The savings they have generated over the past four decades have given local credit markets and the peso a stability that is the envy of serial defaulters such as Argentina or Ecuador, and prompted countries including Peru and Colombia to adopt similar structures. Yet, many complain that the funds have failed to provide decent pensions.
Distrust in the system, and a need for cash, meant Chileans rushed to pull money out of their savings accounts as the pandemic forced the government to shutter much of the economy.
Chilean President Sebastian Pinera on Sunday announced the government will launch its own bill to allow citizens to draw more from their private pensions in a last-ditch attempt to kill off a similar move led by the opposition.
Pinera said his proposed rival bill would be subject to means-tested taxation and would allow for the withdrawn funds to be gradually repaid through state and employer contributions.
The president said his initiative was a better option than the opposition’s bill, which the government says would leave millions of future pensioners with little to no savings.