I wish Trevor Llanwarne well as he retires as Government Actuary, hoping he’ll take advantage of the 10.3% pa uplift in the BSP if he defers his State Pension till 2106.
If he, as many of his civil servant buddies do, puts further strain on the National Insurance Fund, he can console himself in the knowledge that any damage he and his mates have done, will be repaired by the private sector.
This is not some statement from some policy wonk flying a kite, this is from the Government Actuary’s Quinquennial review of the National Insurance Fund – Trevor Llanwarne’s swansong.
And in case you haven’t got the gist of what Trevor is saying, he’s hinting that the depleting National Insurance Fund can be saved not by Treasury intervention but by cutting the State Pension because private savings will take up the slack.
The more you save, the less your state pension!
I admire the man’s chutzpah! Perhaps this was his private joke- like painting your face into a crowd scene or your name into the inside groove of an LP;.
But perhaps he’s serious! Perhaps he will be able to show his mates down the pub how he predicted the cuts in our state pensions all those years ago , when in 2020 the then chancellor gets his knife out!
The point of pensions savings is not to replace pension entitlement but to provide those who put aside money, the rights to extra pension.
The cynicism on display in the Government Actuary’s comment really is breathtaking and demonstrates just how arrogant the civil service still is.
If I was Ian Duncan Smith, to whom this report is addressed, I’d be having a not-so-quiet word with his Government Actuary reminding him just who it is who will be paying his inflation linked guaranteed pension.
Henry
I wonder if he got the nod from IDS to write this so that it could not be attributed to him? What next, if you earn a certain amount, you will have to take out private medical insurance as you will be deemed able to afford it (but you will still have to pay NI),,privatisation of the NHS by the back door!
A very devious thought Gerry – my own theory is that Trevor is mischievous and demob happy.
I am not sure that Trevor’s comment is intended to be mischievous or toxic. He refers to private pension increased provision giving room for “phasing options” after 2020. In political terms 2020 is a long time in the future (further than – or at the limit – where politicians really care about). Also the comment could be taken simply to imply that it is possible to rearrange the payment of pensions and other benefits to be more sustainable without altering their overall value. So I think we should refrain from being too harsh with regards to this throw away line.
However, when we looked at increasing State Pension Age we found that it is a very inefficient way of controlling the spend on state pensions. In our paper we proposed moving from a State Pension Age to a State Pension Window based on actuarial adjustment factors which are slightly more than actuarially neutral. This has the effect of encouraging later retirement, while allowing earlier taking of state pension on terms that net a slight profit to HMT. Given that individuals tend to discount at much higher rates than actuarially neutral this leads to a win win situation where state pension cost increases are curtailed and individuals still have access to a state pension when needed. This could be one of the “phasing options” that could lead to a more sustainable system in future.
For those interested a copy of the paper may be found at http://pwc.blogs.com/the_people_agenda/2014/04/one-size-doesnt-fit-all-making-the-state-pension-work.html
I’m going to read your paper Simon but I am not so sure I am going to let Trevor off!
The tone of the Quinquennial is pretty gloomy and Trevor’s comment, coming as it does at the end of a very long Executive Summary says to me “the fund may be saved by reducing the cost of the SSP”. I’m not familiar with all the ramifications of “phasing” but when in doubt, I have learned that ambiguity is deliberate and usually hides an uncomfortable truth!
To be fair to the Government Actuary, his report is required to answer the question “will the NI find run out of money?” Put starkly, his answer to that, based on OBR assumptions is “yes – by about 2035”.
Given that answer, it’s probably hard to make the report upbeat rather than “gloomy”. But the tone of the report is I think fairly well balanced to avoid immediate panic.
I agree with Simon’s comments on the paragraph Henry quotes but there are lots of other things to note in the report.
One is that removing the triple lock would solve a lot of the problem – deferring the running out of money date to the 2060s. I may be unpopular saying so but I never liked the triple lock – ad hoc political point scoring turned into ideology lite political principal.
Another is that (pace the neo-Malthusians), the really big change since the last review has been the effect of the economic maliase. As LCP say in their commentary, the turnaround from the fund won’t run out to the fund will run out “is in most part attributable to the recession and financial downturn since the last review. In 2005 the review projected that the Fund balance at the end of 2012-13 would be £103.3bn but the actual Fund accounts at that date showed a balance of just £29.1bn, with £68.4bn of the 374.2bn disparity due to lower contributions received than had been expected”. And of course, we have it in our control to really grow the economy in the period up to 2035.
Given all this, the Governmant Actuary’s proposal of keep calm and wait until the early 2020s – when the baby boomers are reaching retirement ages (but may or may not have retired) and everything else chould be clearer, seems a sensible one.
As an aside – on the Government Actuary’s presumed civil service pension, my constant response to those criticising public service pensions is that the problem is not those who have them but those who don’t!
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