Tuesday, 7 May 2013

No. You didn't pay into the "state pension", it's a fraud

One of the most cruel and callous lies of the pension system in the UK is that it involves people paying all their lives "into a system" that they get "paid back" from.

This myth has been created and perpetuated by politicians, and is sustained by the lie that is "national insurance".  It isn't insurance.  Any private company that offered a voluntary scheme that resembled "national insurance" would face legal proceedings and its directors would be convicted of fraud.  I have heard it once described as a PONZI scheme, which is what is resembles.

The problem lies in several dimensions.

Taxpayer funded old age pensions originally were established to address the poverty of the elderly, back in the days when life expectancy was in its mid 60s.  The issue simply being that when people were too old or frail to work (during an age when most work was physical) there was a lot of support for providing for the elderly poor.  This translated eventually into a basic universal pension to avoid poverty, but not much else.

What came beyond that was the idea that people could have more, and that it could be contributory.  "You get what you pay in" sounds like a fundamentally fair principle.  So came "national insurance", essentially a tax that would be a contribution through your life that would reflect in a higher pension once you retire.

Except that it was an unintended fraud.

Unlike individual pension schemes, where there are accounts kept, where the money is invested for a return that will be reflected in the final pension amount, national insurance contributions were treated as taxes.  

The state spent the lot.  It saved nothing and invested nothing.