Following on from yesterday's article about Nanny ignoring fiscal reality, and merrily devising new methods of taxing us further in order to meet her personal expenditure requirements, I think it would be appropriate to mention public sector pensions.
To be precise, if the word "precise" can ever be used to describe public sector pensions, the aggregate public sector net liability for unfunded pensions which is estimated by some to be around £1 Trillion (note the total level of public sector debt of the UK stands at £4.8 Trillion).
How do we pay public sector pensions?
Via tax revenues as, unlike the private sector, there is no pension fund (pot of money) set aside to pay for them.
How does the government budget, ie set tax rates, for public sector pensions that are payable for another 10-20 years?
They use a discount rate.
What is a discount rate?
This is the rate applied to current pension payments to tell Nanny what she will need in terms of funding to cover them over 10-20 years.
What is the discount rate used by Nanny to set her tax/pension budget?
According to Robert Peston it is 3%.
OK so far?
Not really!
Why?
The UK economy hasn't grown at 3% for quite a number of years!
In other words the pensions/tax budget that Nanny is using to calculate/cover future unfunded public sector pensions liabilities is bollocks!
This means that when the bills need to be settled over the coming 10-20 years, either taxes will have to go up or public sector pensions will have to be cut.
Needless to say, Nanny hasn't told anyone that yet!
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"How do we pay public sector pensions?
ReplyDeleteVia tax revenues as, unlike the private sector, there is no pension fund (pot of money) set aside to pay for them.
How does the government budget, ie set tax rates, for public sector pensions that are payable for another 10-20 years?
They use a discount rate.
What is a discount rate?
This is the rate applied to current pension payments to tell Nanny what she will need in terms of funding to cover them over 10-20years.
What is the discount rate used by Nanny to set her tax/pension budget?
According to Robert Peston it is 3%
OK so far?
Not really!
Why?
The UK economy hasn't grown at 3% for quite a number of years!
In other words the pensions/tax budget that Nanny is using to calculate/cover future unfunded public sector pensions liabilities is bollocks!
This means that when the bills need to be settled over the coming 10-20 years, either taxes will have to go up or public sector pensions will have to be cut.
Needless to say, Nanny hasn't told anyone that yet!"
On the basis of this, Ken, it would appear that Nanny is either unbelievably incompetent or utterly dishonest! If I had produced mathematics as inaccurate as these figures for any of my maths teachers when I was at school, I would have received a right rocket, and been made to do all the calculations again (in my spare time) until I got them right! And if it was for a private sector employer, the reward would have been the sack! It's incredible the way Nanny can get away with such things!
If you set up and run a ponzi system, you rightly get prosecuted.
ReplyDeleteIf you bribe someone for favours, you get prosecuted.
Of course these don't apply to Nanny; the whole state pension system is a giant ponzi scheme, there is a statutory bribe now in return for planning permission.
Using a 3% discount rate is the same as charging 3% interest rate growth on the taxes being paid, is it not - and if so, then it automatically assumes that tax revenue needs to grow by 3% per year, whether gross national product grows enough to keep the tax burden from being just that, a growing burden - is what I think. As for government work with a guaranteed pension, nice work if you can get it. Pays to know someone or support the right politics, rather selfish way of setting up the system.
ReplyDelete