Time to Cap Pensions

Tom Bulford - Wed 30 Apr, 2008

A cap should be introduced for pension payments.

The woman in charge of the BBC’s radio output is to leave the corporation with what is believed to be the public sector’s biggest pension pot, valued at £4m, from which she will be able to draw £190,000 per year until she turns up her toes.

Her name, in case you would like to send either begging letters or hate mail is Jenny Abramsky, her age is sixty-one, and in case you fear that she must somehow scrape an existence on this pitiful sum don’t worry. She is to work for two or three days a week at the Heritage Lottery Fund for which she will be paid £45,000 per year thus leaving the rest of the week, I imagine, for shopping.

I think this is obscene - although no more so than the £2m plus pension pots that have been dished out to other public servants of whom nobody has ever heard, such as Sir Andrew Turnbull, Sir Geoffrey Bowman and plain John Smith (also of the BBC).

That these examples are from the public sector is not the obscene part, even though it is your taxes and mine that are funding them. I am sure that figures in the private sector are a great deal higher and even more obscene.

No. What I find obscene is that anyone should be paid this sort of money for doing nothing.

Because doing nothing, by which I mean not doing any paid work, is what retirement is all about, and most retired people that I have met live quite frugally. They do not have children to feed or school bills to pay.

They do not have to dress smartly, fork out for an expensive season ticket, or buy a large family car. They have already bought the essential things in life, are past the stage of wanting to be extravagant and are generally content to live a quiet and peaceful life away from the stress of work, interrupted only by some nice trips abroad.

In other words they do not need the great big fat pensions that they receive, and in any case if they are sensible they will have more than enough money anyway. Nobody gets a big pension unless he or she has been getting a big salary while working, and as they have been getting the latter then they should have been willing and able to put some of it by for old age.

And here is another thing that makes this so unfair. The longer you live the more you get. If Jenny Abramsky lives until she is ninety-one, she will have received pension payments of £5.7m. Even if she bathes in champagne every day I cannot see her getting through all that.

So the beneficiaries will be her descendents who have done precisely nothing to earn it. Of course if Jenny Abramsky falls under a bus on the day she skips gladly from employment at the Beeb she will receive nothing. So depending entirely upon fate and the state of her health Abramsky and her clan could receive any sum from zero to several million pounds. Does this sound right or fair to you?

So here is the latest idea from the Bulford Economic Institute of Radical Thinking. Put a cap on pension payments.

I do not see why anybody should receive more than £50,000 per year, as an absolute maximum. The purpose of a pension should be to ensure that people do not go hungry in their old age. Nobody wants that.

The elderly should be permitted to live in dignity, especially if they have got thirty or forty years of good honest toil on the clock. But for those who want more than the lifestyle that fifty grand a year can offer – and it should be pretty comfortable – then make them pay for it out of the wages of work.

As we all know a huge pension crisis is looming. Although it will not make a lot of difference a cap on pension payments would at least be a step in the right direction, in terms of cost. It would also be a right and fair measure.

What would be the consequences? Well I guess that some might demand more money during their years of employment if they could expect less thereafter. Fine! Pay people well for doing a good job. Make it clear that they must save for retirement. But don’t pay anyone a totally unpredictable but possibly very large sum of money just because they happen to be lucky enough to have a long life.

Regards,

Tom Bulford
For The Daily Reckoning