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Tuesday 24 January 2012

The state pension rip off

There is the obvious question, is the state pension a good value for money?

First we need to know what the historical facts are.

For the past 60 years, we need to now RPI or inflation, historical wages, and the level of the FTSE.

Other information is available here. CPI and RPI, Average Wages

A reasonable yield, or average dividend for the FTSE is 3%.

We also have the median wage for the UK of 26K. From the tax calculator here, we can get the NI paid by or on behalf of the employee. It is 2,253 plus 2,612 or 18.71%.

So now we can work out what median wages are for a person retiring on median wage last year, back to when they were 18. We then take their NI, invest it in the FTSE, add on the 3% of yield. Next year, we do the same, and the FTSE can go up and down.

At the end, we have a fund. We then take that fund and invest in the most expensive (lowest income) annuity going. Joint life and RPI. Anutity rates here.

End result is that a median wage earner would have got 18,587 a year, rising with inflation, until both died. Instead they got a touch over 5,000 a year.

That's some rip off.

Calculations for the details.

Yet another rip off by the government, of what can't be described, as anyone rich.