You may be wondering what Bismarck has to do with pensions. If you do not know who Bismarck was, he was known as the Iron Duke who basically banged a few heads together and knocked 21 bickering little states into the world power that became Germany. Another of his ideas was the world’s first state pension in 1889. When choosing the original retirement age, he apparently he asked his civil servants “By what age are most of them dead?” and was told 65. Most countries have followed this example ever since. At that time, the average life expectancy in Germany was 66 so the government only had to pay the State Pension for an average of a year.
We all live much longer now and more than one hundred years later, this government has only now had the courage to change it.
The new retirement age of 68 age is probably too low – 70 would be more realistic. The sad thing about making the retirement age higher is that an increasing number of people will die before taking benefits. If the retirement age were 70 for example, 27% of men and 17% of women would die without receiving any pension.
But some of the government measures on pensions are ludicrous and inimical to having a decent pension. There are now 700,000 more public servants than 1997 who all have risk-free pensions which are basically paid for by the private sector.
If the government wants us all to save for a pension why did Gordon Brown remove the dividend credit back in 1997? That measure gives the government £5 billion a year or as a rule of thumb, people now have to increase their pension contributions by TEN PER CENT to achieve the same pension fund at retirement.
Similarly, the recent National Insurance increases give the government an extra £11 billion a year. These are huge extra costs for employers and will only increase unemployment in the long run as more jobs are exported. This means a smaller and smaller working population supporting an increasing number of unemployed. The benefits system positively encourages cheating as claimants face effective marginal rates of tax of 100 per cent sometimes when they lose their benefits at a certain income level.
For the vast majority of people, we are going to be working till we drop. If you want to know how much a proper pension would really cost, look at some of my other pension blogs, for example: http://www.georgeemsden.co.uk/?p=17
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