AMID the correspondence about future pension funding for Scottish pensioners (Letters, June 15, 16 & 17), one of your readers compared current arrangements to a “Ponzi scheme”. In fact, I would agree with that description, but only to a very limited extent.
The “Ponzi” element of the state pension is that it is payments by new “investors”, by way of National Insurance and other taxes, which fund pensions for old guys like me. The difference is that, in a Ponzi scheme, these later payments are used to give early investors flashy gains, thus sucking in more and more new money, until the whole thing collapses. The current pension system is more like a luggage carousel, where there is a constant flow of luggage or payments in and out (and, of course, the returns can’t be described as flashy).
There is an evident lack of understanding of how the whole system works in terms of funding, and the label of National “Insurance” may be partly to blame for the persistent belief in a pot of money, invested for pensioners in the manner of an endowment policy. An NI contribution record acts as a necessary gateway to eligibility but at no time have NI contributions been hypothecated to providing pensions, just as road tax and other motoring duties are not hypothecated to road building or maintenance. The essential thing is to ensure that the economy (UK or Scottish) works at such a level that the inflow is maintained and pensions can be set at a decent level for all.
Any…
