Grand Theft: State Pensions
This is something we have said before and we will say again. The biggest threats to your wealth are not market dips, or how good or bad the economy is - they are inflation and taxation.
Inflation is the leak in your fuel tank that you keep filling up to compensate for. Inflation is the shrinkage of clothes badly laundered. Inflation literally reduces the worth of your money every day, week, month and year.
In the UK, the State pensions are set to rise by 3.1% from the 14th April this year. This brings it in line with the CPI (Consumer Price Index). Back in 2010, pensioners were promised by government to have increases based on the highest of three benchmarks - the CPI, 2.5% or the National Average Earnings.
Last year the UK government suspended the National Average Earnings part of their guarantee for 2022-2023, as that would have triggered a pension increase of about 8% after vast amounts of borrowing and economic slowdowns due to government Covid policies.
So UK pensioners are left with the CPI as stated, at 3.1% from April. However, it's interesting to note that the UK government uses rates from September, but doesn’t apply them until the following April. Naturally, inflation doesn’t stop for a few months while these increases are implemented. Right now the CPI figures for the last 12 months are in excess of 6% - or double what the Pensions Service are promising pensioners in Britain.
We don’t expect live rates of course - accurate numbers are hard to predict, but even if the government was using some kind of live, blockchain system with prices calculated accurately and applied immediately once a year, the UK pensioner’s fuel tank is still leaking away…
So from April, the new rate for State Pensions will rise to GBP185.15 per week. A couple qualifying for that would see a total income of just over GBP1,600 per month.
Assuming prices increase by another 6% over the course of the year or 0.5% a month and that John and Jane Pensioner spend the full sum each month, they will find that by May they are some GBP8 short, GBP16 in June and so forth until by the end of the tax year they are short by some GBP528.
John and Jane Pensioner will need to borrow to meet the gap (and credit cards are in the range of 35%) or do what most pensioners who only have a state pension can do - cut back on goods and services, and manage with lower quality as well.
Then, the following April it all starts again. John and Jane Pensioner are already over 500 pounds short from last year but don’t get that back, and will likely see another year of inflation eating away their spending power again and again and again.
Once upon a time, tampering with currency was considered high treason and invited the death penalty in Britain. The Bank of England does claim that if inflation is low or negative, people ‘might be put off spending as they expect prices to fall’ - this claim doesn’t hold much water when the Bank’s own calculator shows that for most of the 1800s inflation ran at an average rate of -0.1% (negative) PA and the 1800s were a time of tremendous growth and change, and the beginning of the alleviation of horrific poverty by the end of that century.
t’s critical for anyone of working age to keep building up their own pension funds, even if they plan to rely on the State Pensions in part or in full. Without huge, sweeping changes to the system it simply will not be enough for most people who expect even a modest retirement.
And this example is just the UK. Dozens of other countries are playing the same games with their state pensions systems as people are living longer and costing the system more. Politicians cannot keep raising taxes if they want to stay in office, so they find other ways to ‘pay‘; which means stealing from the pot you’ve been assured and paid into your whole life.
Thankfully, it’s never been easier to grow your wealth at almost every stage of your life, and at most levels of income. Get in touch if you’d like to know more: Contact Us