Friday, September 16, 2011

Ponzi schemes to the left (of the pond) and Ponzi schemes to the right (of the pond)...

In My Arrogant Opinion has a very succinct quote about US Social Security...
Really, the only way Social Security isn’t like a Ponzi scheme is that knowing it’s a scam doesn’t protect you from it.

He also links to this amusing video, in which a young man rings up the US Securities and Exchange Commission (SEC) and attempts to report this disgusting fraud—using the SEC's own definition of a Ponzi Scheme as a reference.

As regular readers will know, your humble Devil has—for many years now—repeatedly (and at length) pointed out that our own dear National Insurance is, in fact, a colossal Ponzi Scheme. Indeed, I reinforced this fact in a conversation with JohnB [Blockquotes are JohnB's points.].
Some benefits and pensions are qualified by time spent paying NI; some are not.

NI is supposed to cover health care, state pension and unemployment benefit.
All are paid out of general taxation. Some taxpayers pay NI; some don't. All the money goes into the same government pot.

Receipt is supposed to be on the basis of money paid in (which is why freelancers sometimes get shafted); it is not so long ago that you could be refused certain benefits on the basis of "not having paid your stamps".
The point about a Ponzi is that there's no underlying revenue source.

That's not entirely true: Ponzi did have a revenue source—as did Madoff. What neither of them had was a sufficient revenue source to cover the pay-outs that they were making (and advertising).

By any measure, that curently applies to the British state: it does not have the money to pay out what it advertised to "investors".

Because it is the British state, it can—and does—borrow vast amounts of money to cover the pay-outs, but it cannot do so for ever. For a long time, yes; for ever—no.

Even if the government could take the entire British economy in tax (which would, of course, destroy it), it could still promise more than it could deliver.

As it is, the government is advertising returns that are far, far in excess of its income (feasible tax) and, eventually, its ability to pay: it pays the returns to people with their own money or with that of newer investors (in the case of pensions, the next generation).

This is, quite obviously, a Ponzi Scheme.

And if you doubted that the government is unable to afford the most basic of the National Insurance payments. As from next year, we are all going to be taxed another 8% in order to pay for our pensions.
Yes, indeed—starting from next year, we are all going to have to start paying into a compulsory pension scheme.

(Well, I say "all"—but, of course, it only applies to those who have jobs. People who have never worked in their lives can continue merrily to pay fuck all.)
The Pensions Regulator has just issued a reminder (PDF) that all employers will have to provide a pension arrangement to all employees, beginning in October of 2012 on a widening basis until 2016. This requirement calls for a minimum total contribution to an approved pension scheme of 8% of salary, of which at least 3% must be contributed by the employer and the rest by the employee. Employers may choose to introduce a more generous scheme if they wish but the 8%/3% is the minimum requirement.

Alright, so I exaggerated slightly in the headline: the employee will only pay a minimum of 5% into this "approved" pension scheme. However, anyone who thinks that the 3% employers' contribution (plus the costs of administering the scheme, of course) will not adversely affect wages is a total idiot.

Of course, the whole thing seems so sensible—yes, we do need to save for our retirement and, yes, too few people save anywhere near enough (especially when they are younger). And yet...

This is, effectively, the government admitting that it is unable to meet its pension obligations despite already taking 11% from the employee and 12.8% from the employer—money that is supposed to cover these obligations.

Plus, the government is also adding 1% to each set of contributions for 2011–2012: that is, you will pay 12% of your salary and your employer 13.8%.

So, NICs is most definitely supposed to cover pensions.

We and our employers are paying a combined total of 25.8% of our salaries into National Insurance (which is supposed to cover state pensions).

Now, we and our employers are having to pay in extra, to a minimum of 8%.

This makes a grand total of 33.8% of your salary that is being paid into—what is, effectively—social security. Yes, that's your pension, health care and unemployment benefit.

For me, this means:
  • £2,852.64 employee's contribution +

  • £3,302.06 employers' contribution +

  • roughly £930 employee's new pension contribution +

  • £1550 employers extra pension contribution =

  • Total for state cover: £8,634.70 per year.

Now, since I have all of these privately (to roughly the same level), let's do a comparison:
  • Health care (top care possible): £768 +

  • Pension (to roughly the same pay out as the state pension): £2,160 +

  • Unemployment cover (better than the state provides): £264 =

  • Total for private cover: £3,192 per year

Now, I don't know about anyone else, but I think that I'm being scammed here—and not by the private sector.

The simple fact is that the government cannot pay out at the advertised rates, and it forces us to pay more and more and more in so that it can pay out the older investors.

It is a Ponzi Scheme—and that is being generous. Were I being ungenerous, I would simply state that it is massive larceny on a grand fucking scale.

It's one rule for them...


Anonymous said...

Well, obviously - as some people might say, your private pension is just you being "selfish" in that it only covers you (and your family). The state cover needs to pay for those who can't contribute as well.

The question is - if there was no NI, would your take-home pay really increase by 8634.70? And if there was no income tax or VAT, would your gross salary stay the same or drop?

TheFatBigot said...

It is not just NI but roughly a quarter of government expenditure that is a Ponzi scheme at current levels of spending.

Because NI is (nominally) hypothecated it is the easiest to identify. In fact all current spending that is funded by the hope of future income (in other words by borrowing in the hope tax revenues in the future will finance both the interest payments and repayment of the principal loan) is a Ponzi scheme.

Unless and until government reduces its spending by so much that it repays its current debt and builds a self-sufficient fund to finance (i) the state old-age pension, (ii) the element of the pensions of State employees that is not financed by private pension funds and (iii) a cushion against future economic downturns, it is operating a Ponzi scheme.

Anonymous said...

Social security is not exactly a Ponzi Scheme. It's worse. At least in a Ponzi Scheme everybody contributes something into it (maybe except the originator). Many people get payouts in the form of benefits, healthcare and pensions, who have never paid into the pot and never will.

Oh and you can't count stamps paid on behalf of someone not contributing, which the genuine contributors have ultimately paid.

Mr Ecks said...

I understood there is an opt out from this "new"pensions pile of shite. This is the same crap ZaNu were advocating isn't it?.

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