UK: Higher earners ‘to retire at 70’ (possibly)

[muriel_volestrangler]

UNIVERSITY graduates may be barred from receiving a state pension until they are 70 under proposals from Tony Blair’s pensions supremo to solve the looming crisis.

Adair Turner, head of the government’s Pensions Commission, says lower-paid workers could, however, still retire on a full pension at 65 to reflect their lower life expectancy.
...
“So we have to be sensitive to that when we put up the state pension age. For example, the person who starts work at 16 would be able to get something at 65. The person who went to university and started serious work at 23 is not going to get it until 70.”

In the interview, Turner said that all workers might have to be forced to save for a pension with the money invested on their behalf by the government. It would ensure that everybody would have an annual income of about £12,000 a year, including the basic state pension.

http://www.timesonline.co.uk/article/0,,2087-1622625,00.html

Sounds like a crap idea to me - if they tried to make it retroactive, it screws people who were already told that going to university wasn't a problem with National Insurance; and it would put the effective cost of going to university up even more, putting off more people (especially those who wouldn't be looking at jobs where you can build up a decent private pension, eg teachers). And the 'money invested on their behalf by the government' sounds bloody ominous.

[necso]

1. There might be the kernel

of a good idea here. But I can't say that I like this particular form at all.

Changing the date at which one can start to get SS, based (perhaps) on lifetime earnings, earnings at or near (potential) SS start-payment dates (based on the age of the candidate) and possibly other factors has some potential... at least at first blush.

This would not have to change SS payment amounts, and it does not turn SS into some sort of welfare program (which would make it a target) -- because everybody gets paid, sooner or later -- and (could be paid, hopefully) in the (monthly) amount that they would otherwise expect.

But the idea needs a lot of thought before deciding that it has potential -- and can be sold to those effected -- and has no obvious vulnerabilities.

So I'm not pushing it -- but it deserves some thought.

[fedsron2us]

2. Lets do the sums

An employee currently earning £20,000 pays 11% of his earnings in Class 1 NIC. His company has to fork out a further 12.8 % in employers contributions. I calculate that for every individual in this category the British government receives £4760 per annum. This money even if not held in interest bearing deposits is far more than that individual would currently receive in the form of a state pension. Even allowing for the fact that some of the contribution covers unemployment and sickness insurance it should still be adequate. The problem is not the size of the miserable British state pension (one of the lowest in any industrialised nation) but the fact that the government uses the superannuation contributions to fund its other activities such as the miltary adventure in Iraq. The distinction Turner is making between graduates and other workers is largely bogus because the former group tend to earn more during their working lives and therefore contribute as much in National Insurance as the latter. In view of the fact that the average graduate has paid contributions for over forty years by the time he retires at 65 I think he should be entitled to take his pension at the same time as everyone else. I suspect that the Turner proposals will be opposed by the Tories and Liberal Democrats so the government may find itself depending on the votes of its rebel backbenchers to get any legislation through. As the Labour malcontents are already seething over Blunketts proposals for incapacity benefit reforms their support can not be counted on. This may never fly.

[muriel_volestrangler]

3. I agree the contributions are different

they just had someone on the news saying the same thing. The calculations are more or less impossible to do though - because the 11% entitles you to SERPS/SSP. However, no-one, not even the government, is capable of telling you how much your SERPS/SSP will give you when you retire. But the idea behind SERPS/SSP is that those on lower earnings do quite well, relative to the contributions, while those on higher do less well, with a limit on the actual amount you get (which, I think, affects those earning more than about £20,000 - is that why you choose that figure?) But your general point it correct, I think.

[fedsron2us]

7. I agree SERPS complicates the figures

and the rules for this part of the pension change all the time. The earnings of £20,000 used in my calculations was purely arbitrary. It was a stab at average take home pay. According to the figures from the Office of National Statistics the true figure is nearer £22,000 per annum. This sum has been revised in recent years to remove the distortion that was being caused by the huge pay received by company executives etc so I presume it is fairly accurate. In fact the earnings figures are irrelevant since none of the governments NIC sums really add up. For example, the self-employed pay a Class 2 NIC rate pay a a flat rate of £2.10 per week or just £109.10 per annum They are not entitled to SERPS, sick pay or unemployment benefit so these monies purely relate to their entitlement to the basic state pension which is currently about £82 per week for a single person. Now it is clear that this sum comes nowhere near covering the actual cost of providing for their retirement. The self-employed do also pay Class 4 NIC on top of this basic contribution which at the rate of 8% of their profits over £4,895 for 2005/06. However, this contribution is simply ignored by the state when working out the individuals pension or entitlement to any other benefits. It is therefore technically little more than another tax. This same process has also started to effect the calculations for Class 1 NIC for ordinary employees. In the past individuals and companies used to only have to pay NIC on salaries up to an Upper Earnings Limit (currently £630 per week). Over time governments abolished this ceiling for employers contributions and have in recent years started to make a deduction of 1% from all employees wages over this UEL. As a consequence the true nature of NIC has become corrupted. Governments now use it as a disguised form of income tax. This process has been going on because the crazy Thatcherite mantra that the basic rate of income tax can not rise has become accepted by all parties. In fact the amount of state levies on earnings has gone up slowly over the last 10 years it has simply been allocated to a different head of duty. This farce is just another display of the stunning lack of honesty with the public that permeates British politics.

[Kipling]

4. Do you think...

This will apply to people who take "practical" (ie, lower-class) courses in plumbing or whatever?

[Michael_UK]

5. I can see the point to this

I'm doing a PhD right now after a four year degree, and probably (after 7 years of education) will graduate when I'm 26. When people start work at 16, it does seem a little unfair that I can expect the same pension when I'm 65 as the person who left school at 65 (given that I've worked 10 years less)

[Vladimir]

6. I disagree

doing a PhD is work. I don't know about your PhD but mine is pretty much a 9-5 thing (well, its supposed to be anyway :) )... anyway, on the wider point,I really think society should get out of this current mentality that education is somehow a luxury. It is true that you could have started work at 16, but many of the jobs that society could not function without require you to have training first. So why should you be penalised by not only having 4-7 years of training, where you are unpaid, but then having to work that much longer at the end of your life? In fact, since top-up fees, its doubly outrageous. You pay for your university education, and then you pay again with a higher retirement age. Its just a cheap gimmick to avoid having to deal with the pensions issue sensibly IMO.

[AP]

8. A PhD is work, and the return on the investment is higher lifetime earning

compared to a person who didn't get an education and started work at 16. So the PhD is getting a double benefit -- and opportunity to vastly increase their salary, plus a headstart on getting their pensions measured by number of years worked.

I suspect that the UK -- because the fees are low, and because you're not paying a huge % of your student fees in the form of interest to a bank -- still is worth the investment. Futhermore, wages are up and unemployment is down. In the US, education is outrageously expensive (financing it is simply a vehicle for delivering profits to private banks) and the job market is crap.

The way Labour are doing things in terms of the way education is financed and in terms of providing an economy that makes education worthwile is just about perfect.

[Vladimir]

9. Well a PhD you do get paid for in the UK

that's part of the reason why its work and why this whole retirement age debate is nonsensical. Which was not clear in my original post, so I apologise for that error. The undergraduate degree you pay for, the PhD is paid for by the state.

[Anarcho-Socialist]

10. Are all PhDs paid for by the state

or just in some shortage subject areas?

[Vladimir]

11. As far as I know in the UK

to do a PhD you have the option: either to pay for it yourself, which is prohibitively expensive for most people, or to get a funded place. All courses are attached to one of the national funding councils (AHRC, PPARC, ESPRC, etc.) and get a certain number of funded places per institution per year.

I should also note that this funding is entirely tax-free, and in the region of 10,000-13,000 pounds per annum, depending on the subject.

[Anarcho-Socialist]

13. Thanks n/t

[Guy_Montag]

26. Some people get funded by industry too. n/t

[muriel_volestrangler]

12. having a PhD doesn't 'vastly' increase your salary

in fact, it hardly seems to make a difference at all.

Chemical engineers:

An overall comparison of education across all age groups shows that engineers with a bachelor degree earn most, averaging £42,000 over the course of their career. Those with doctorates are next with a median wage of £41,000 and those with masters earn £36,500. It is thought the lower salary of engineers with masters degrees is influenced by their lower age and that they are more likely to work in sectors like research and development, and education, categories that show lower salary patterns.

http://www.tcetoday.com/tce/files/art/salary.htm

Physicists:

There are financial benefits to extra study. As shown in table 3, the 45% of physicists who go on to study a PhD earn an average of £35 000 and the few that gain a DSc do especially well financially, since they are paid a median salary of £52 200. Those who study for a masters degree earn £27 500, while those with an honours degree make £30 300.

http://physicsweb.org/articles/world/14/10/9

[AP]

15. I suspect that the numbers for people with only BAs are skewed by a few

very high wage earners (a law degree in the UK is only the equivalent of a BA and there will be a few very high earners who are going to pull up the average).

But a PhD might not have the high highs, but will guarantee a median around which more people are clustered. Futhermore, the PhD salaries might be pulled down by people who are in acadmics, rather than the private sector -- jobs which might provide non-financial benefits which people highly value (like the equivalent of tenure -- or, whatever is left of it after Thatcher).

Oh, wait, I see that you've only picked two of the dozens of professions there are. I really don't know what that could possibly tell you about the value of an education with a narrow sample, both of which are drawn from the sciences.

Despite your evidence, I think it's save to say that the more education you have, the better off you are, despite the fact that there are outliers. Obviously, if there were no financial benefits to spending that extra time getting an eduction, people wouldn't be doing it, given that people are, more or less, rational.

And, for the purposes of this discussion, I think it's save to say that a PhD does vastly better than a person who enters the work force at 16 without even one or two O Levels, or whatever.

[Vladimir]

16. And therein lies the problem with your approach

to this problem AP, in my opinion at least. If I may quote you:

"Obviously, if there were no financial benefits to spending that extra time getting an eduction, people wouldn't be doing it, given that people are, more or less, rational."

That is precisely the point. People should not view an education, university or otherwise, as a path towards a higher salary or other material benefits - that is exactly the mentality we have to get out of.

[AP]

18. I'm reading the Working Poor by David K. Shipler...

...and there's a pretty good passage about how capitalism is good and bad. One thing it does well is encourage people to reach higher and progress and move in directions that improve the quality of life for everyone. When you screw up the risk-reward calculus, there's a huge opportunity cost. People who don't need to suffer end up suffering.

Capitalism, however, also exploits differences.

I definitely don't think the solution to these problems is to make education something that doesn't reward people financially. There should always be a good carrot at the end of the stick that keeps people moving forward. They should be able to reach that carrot. The people who fail should get some kind of safety net financed by the wealth created by rewarding effort and work.

We don't need to get rid of the mentality that hard work has rewards. We need to get rid of the mentality that when you get that reward, you did it all on your own and that you don't owe society or anyone else a small part of your financial rewards.

[Vladimir]

20. I don't want to get into a debate about capitalism

as such, because I freely admit that I haven't studied enough theory (either Marxist or bourgeois) to have take part in a meaningful theoretical discussion. What I would say about education though, is that viewing it as a case of something you invest in to reap rewards fundamentally misses the point that all society benefits when any one of its members educates themselves - in whatever field. It is fundamentally not the case that we should get rid of the idea of hard work reaping rewards, but that we should get rid of the idea that education is something you do as an investment toward future materials benefits. Education, as I see it, should be something that everyone aspires to as a life-long programme of becoming a more enlightened human being. We accept that primary and secondary education should be free, or at least most of us do, but I think that is based on an outdated notion of what level of education is "sufficient" for everyone to have. A progressive stance, IMO, is that everyone with an interest in education further should have the opportunity to do so without financial considerations of any sorts, and that they should be encouraged to take these opportunities up, whether in the form of part time university courses for those in work, or full time ones as training for a specific career. Far too often, the education system serves only to produce a person equipped to work in the market of the country they are being educated in, and once they are in work people are encouraged to look upon their education as precisely a 'stick' they have endured for the purpose of getting a job. That in turn leads to both a social stigma against education, and to a stigma against those jobs in society which must be done by somebody, but do not require a high level of education. As a rather cheap example, someone has to sweep the streets, but bourgeois society has no need for its street-sweepers to be either intelligent or educated, and that is of course true of other manual jobs as well. Such a group of people will always exist, and remain uneducated, in any capitalist system - regardless of whether a few of them manage to "make it" - because there is no incentive whatsoever to provide them with, for example, a university education.

I don't incidentally pretend that this is a question which would be solved easily in a socialist system. A Marxist friend of mine once asked me the question, and its a very good one : "If socialism was declared tomorrow, and the central planning commission said that you, PhD and all, was to clean the streets, would you do it?". Its a bloody hard question to answer with a yes emotionally, although intellectually I think a yes is the only correct answer.

I also reject the notion that human beings are motivated primarily by a risk-reward calculus, because this singularly fails to explain the great technological progress made in societies where work hard and innovating was not directly rewarded in material terms - like for example the Soviet Union. To put it crudely, Landau did not make some of the most significant contributions to 20th century physics for financial gain. I think it is one of the great propaganda successes of capitalist countries that only in 'capitalism' (and its a bloody imprecise term, but widely used) are people motivated to work hard and contribute to progress. This is simply not borne out by empirical evidence. It is however a fact that we are conditioned by society to think of 'reward' in purely materialistic terms, and this is a notion that needs to be fought IMO.

edited for clarity and spelling

[AP]

21. I think it's naive to think that education isn't an investment in the...

...future and that its value shouldn't be measured by the material rewards.

"Enlightenment" doesn't put the food on the table and it doesn't give people the risk-reward motivation to come up with the cure for cancer.

"Enlightenment" aslo reminds me of some of the rich kids who went to my very expensive college. They took up seats at a great school with great resources, went on the best grad schools, worked for a couple years and dropped out to have kids, or their parents set them up with careers. They didn't need the education to have the life they ultimately led. They went to college for other reasons than to contribute to society. It's too bad, because they took the places of students who would have made much more of the resources, who would have gone on and seen their potential multiplied and society would have benefitted as much as they did personally. I think it's very important to think of education as a process whereby you consider how it contributes to society as much (if not much more) than how it contributes to self-enlightenment.

Your comment about free education is a tangent, but I will say that if society is prepared to fund free education out of progressive taxation, I'm all for it. However, I've noticed that the cheaper an education is, the longer it takes for college students to get through it, which creates the problem of wasting resources on people who arent' contributing, which makes it very hard to fund the thing based on taxes (which only come from the creation of wealth). The University of California probably has the highest ration of quality to cost, and they really shove you out once you have your credits to graduate. So much for life-long enlightenment. In terms of a compromise -- allocating the costs of an education on the people who benefit, I think Labour got it exactly right: no interest "loans" that you pay not when you're at your poorest, but when you start earning money, but only if you earn a decent salary.

I utterly agree that education shouldn't follow the whim of the marketplace. This is a problem with the State University of New York system right now. Essentially, industry lets SUNY know what kind of cheap labor they need, and SUNY takes resources away from other programs and uses its universities to fill the marketplace. (Lisa Duggan writes about this in Twilight of Equality.)

But that is bad precisely because it isn't an investment in the future. It's bad because it's serving the short term profit motivations of whatever large corps have the governor's ear, and it's depriving the future of well-rounded, smart, resourceful individuals who can innovate (and perhaps innovate in a way that challenges the hegemony of those large corporations which want the Governor's and SUNY's assistance and protection).

There is so much more to say about this, but I think the short version is, if you're worried about people's spirtuality, perhaps you need to focus your attention on the church. If you're worried about everything else that makes a difference in people's lives -- ie, materiality -- than worry about what your government does to create wealth and distribute it fairly to people who work to earn it, and part of that is thinking about how education is something that is very valuable to future generations, and thinking of it as something we just do as an anti-materiality thing, or as something that does not play a role in creating wealth for individuals is very misguided and naive.

Incidentally, I think there is a place for the educated street-sweeper. One think Shippler writes about in his book is that in America intra-generation social mobility is dead (it's no longer the case, as it was with Shippler's grandfather, that a high school drop out can emmigrate to America and then become president of a steamship line after be promoted up from the docks). The only mobility is intergenerational, Shippler's grandfather didn't graduate from high school not because he was dumb, but because war disrupted his education, he had to leave Europe and he had to work to live.

America should have educated streetsweepers because (without the displacement of war and the desperation of poverty) it should be the way to grease the skids of intra-generational social mobility.

And re Landau: if Landau couldn't feed himself and his family with his work, he might have done something else. And what's wrong with a society that rewards work like that? We'd have more Landau's that way.

[Vladimir]

22. Where have you noticed that

"the cheaper an education is, the longer it takes for college students to get through it"? In Britain, for example, the time spent on courses has not dropped since tuition-up fees were introduced, in fact many courses are taking longer to complete, though for throughly unrelated reasons.

Labour's programme... I said all I have to say about this the last time we discussed this, and I don't think either of us is gonna convince the other. But what I will predict, and boy will I be happy to be wrong, is that university education in Britain will be privatized before long. Top-up fees don't bring in nearly enough revenue for the universities to compete with American ones in research terms, which was the crux of the problem anyhow, and they never will be able with the system as it stands because the endowments ain't there.

As for enlightenment, it was a bad phrase but it has nothing to do with spirituality or religion as such - I meant it in the sense of becoming more knowledgable and aware of the world around you in general. But if you follow your risk-reward mentality, education will always serve the "short term profit motivations of whatever large corps have the governor's ear", indeed if you look at Labour's whole education programme, things like inner city academies etc., that is precisely what its geared towards. If you want people to look on education as an investment towards material gains, why are you so surprised when supply and demand start dictating what kind of courses are provided for people to study?

on edit: I might also add that the difference is not one of 'naivety' AP. The difference is that you believe the current system can be reformed to make it fair, and as a socialist I don't.

on further edit: Of course you are right that education, and further/higher education specifically, should also be of benefit to society. But I don't see how you are going to fix the problem of places being allocated to the sort of rich kids you describe in paragraph three within the current framework. They are always going to be able to buy their way in, as long as education is regarded as a commodity. That is also why its not naive to talk about education as a basic right of human beings in our society to have, as opposed to being an investment.

[AP]

23. In the US...thus UC's policies.

As for the rest, I reiterate my previous post, and I think -- again repeating myself -- that SUNY is a great example of how giving BIG COPRORATIONS (with the emphasis on 'big" and 'corporations') the kind of graduates they want is not in the best interest of society (because it polarizes wealth, which is the thing that caused the Great Depression -- it creates huge profits for large corporations by creating single-purpose/minimally educated people who are tied to a specific career and aren't flexible enough to move into other professions when the markets change).

I'm not saying that students should be educated for a single purpose. I'm saying that students should think of their education not as something they do only for their interior life, but as something they do in order to make a contribution to society, and they should be very politicized to demand a very fair percentage of the wealth they create for society, regardless of the value they create.

[Vladimir]

24. I kind of wish I hadn't made that comment about

enlightenment now, because it has obscured my central point totally. So I'll try again... hopefully I can be clearer this time.

I completely agree that "students should think of their education not as something they do only for their interior life, but as something they do in order to make a contribution to society". The problem is that today in the UK, too many students think of it as something they do to get a better job, precisely along the lines of investment and reward which you advocate. That in turn has led to precisely the kind of 'marketization' of education represented by SUNY, which you disagree with. I think it is only when we regard education as something that everyone would wish to partake in throughout their lives, regardless of any direct material benefits to themselves, that we will solve this problem.

[AP]

25. And just to clarify my point...

...I think the only way the little guy is ever going to get the political power to create a world that distributes wealth fairly and equitably (and improving the material conditions of people on the bottom and middle should be a primary concern of government) is to amass economic power.

So, people should be concerned with getting economic power, and the prerequisite to that is getting a flexible, well-rounded education. Knowledge is the best way for a person who has not financial capital and only the ability to work to maximize the value of his or her labor.

Big business wants cogs. It doesn't want people with the ability to amass economic power. SUNY is producing cogs, and not people who can amass economic power. It is not an overstatement to say that, basically, a huge bank calls the governor's office and says we need telemarketers. Please cut funding for Medieval Literature and increase the number of marketing majors. Ulitmately, that does the opposite of helping people be effective accumulators of life time economic, cultural and political power.

It's OK to think of your education as a way to amass economic, cultural and political power. If enough power flows down to the middle class and to people who work for a living, that will create the marketplace that allows people to pursue more esoteric subject matters (like 18th Century French Poetry) because scholarhsip and research and academics becomes more valuable as there is more wealth at the bottom and middle creating a demand for more diverse ways of looking at the world. As you have more wealth, things at the fringes become more interesting and provide more insight into the way the world works.

To come arround to the beginning, alot of this stuff requires a political will that will never reach critical mass unless people vote progressives into office who see the value in accumulating wealth in a large middle class and in the hands of people who work to create it, and the key to creating that critical mass is for yourself to be a member of that class who has economic power. You should think of your work as leading to a job that creates social value (and you should think that you deserve a fair and large percentage of the social value you create).

[muriel_volestrangler]

17. I picked those 2 because they were the first examples I found

of comparing PhDs and first degrees in the same subject area - so that things like law degrees don't skew the figures.

Yes, it's quite possible that academics do lower the average salary in a subject area - but that's the point. Academia demands that you get lots of qualifications, and then doesn't pay specially for them. You can't just assume that higher qualifications mean more salary, and therefore penalise people for the higher qualification. You should say that a higher salary means you contribute a bit more - ie progressive taxation. I know that's something we both believe in.

The argument is now academic (so to speak) anyway, since as fedsron2us has noted, the idea is not going to be picked up.

[AP]

19. My point is merely that education has its rewards (esp. relative to...

... the person who starts work at 16).

Control for academic PhDs and the correlation between education and salary in these two professions might be even stronger. And, as I said, academics may find the non-financial compensation (like summers off, flexible work schedules even during the school year, prestige, and some vestige of tenure) extremely valuable (especially relative to someone with no education), and therefore the argument might still apply.

The point might be moot in terms of British public policy, but I wasn't trying to take a side on the policy front (at least I hope not -- I'm not going to reread my post before posting this one). My point was merely that the more education you have, the better off you are. And, yes, I'm all for financing social spending out of progressive taxation (that, especially, shifts the tax burden off wealth from work and on to wealth from wealth).

[Guy_Montag]

27. If people did PhDs to improve their salaries,

no-one would work in Universities.

There are people in my department on their 3rd three year post-doc contract.

There are two people who have worked for over 3 months unpaid to secure funding for their next project.

A good starting salary for a post-doc is £19K a year. Not bad, but this is at c. 23. Without having earned money for the previous 7 years & these days being up to £10K in debt.

We do not get our summers off! Some people go on field-trips, others are able to conduct research without having students disturbing them. But we do not get 10 weeks holiday. In fact my supervisor rarely takes more than two weeks a year.

So getting a PhD is not a free pass to easy street.

[AP]

28. I would say, "to avoid the lifestyle of people who start manaul laborer...

...jobs at age 16" probably has a lot to do with the motivation to get a PhD if "to get very wealthy" does not.

Intellectual labor is, in many ways, as difficult as manual labor. However, academics have some non-economic benefits which people often value as high as cash money. And even a failed academic often has a few more options than a failed manual laborer.

[fedsron2us]

14. Blunkett to rule out graduates working until 70

The government is to set out plans next month to persuade or even compel people to contribute more to their state pension but has ruled out reported suggestions that graduates could be compelled to work until 70 to bridge the funding gap.

http://www.guardian.co.uk/uk_news/story/0,,1489995,00.html

It did not take the government long to beat the retreat on this topic. As I suspected it was just a bit of political kite flying to test the waters on pension reform. Ministers know this is a hot topic where nearly every voter is likely to end up a loser. As a consequence it is pretty much a certainty that the party which actually legislates on the issue is going to be punished at the ballot box. This is why their is so much talk from the government about seeking 'cross party' support. They want the blame to be shared around.