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UK’s aging population is a bigger economic threat than the financial crisis

admin — Fri, 12 Feb 2010 11:49:27 +0000

Just when you thought it was safe to come out into the open. As if it weren’t enough that the euro is crumbling, that the banking sector is still vulnerable; that Britain is steeling itself for its biggest spending squeeze in living memory, along comes Barclays Capital with some really bad news.

Having slid its slide rule over Britain’s demographics, it is warning that the real threat to the economy is not the fallout from the current financial mess, but the weight our ageing population will impose on the budget.

It is hardly a new warning: economists were getting hot under the collar about this decades ago. Back in the early 1990s it was all the OECD and IMF ever talked about. In a few years, they said, the baby boomers will retire and before you know it Britain, and for that matter most of the Western world, will see the proportion of its population in a retirement balloon.

The consequences are depressingly predictable: the budget deficit will climb higher and higher as those pensioners collect their retirement and medical benefits – all to be paid by a shrinking core of taxpayers.

The difference between then and now is that the squeeze is finally starting – this year, according to Tim Bond of Barclays. The bank forecasts that in a relatively short space of time, the interest rate on long-dated gilts – which in turn determine interest rates throughout the economy – will rise from around 4pc to well over 10pc. It is hard to overemphasise the significance of this sea change. Put simply, for the next decade, life will become increasingly expensive for the average household, squeezing ever deeper into their incomes. Standards of living will diminish.

The analogies with the financial crisis are plain to see: for years, Britons have lived beyond their means, financing it by, in effect, borrowing off future generations, whether through debt, by creating unrealistic pension obligations or social welfare systems that simply cannot be funded without an ever-greater contribution from the working population. Demographics is destiny, they say, and the statistics suggest the UK is destined for a major squeeze.

As if evidence were needed, it was provided in graphic form yesterday by BT, which admitted its pension deficit has now risen to a staggering £9bn. Shocking as this is, it is only a microcosmic example of what has happened across the UK and other Western nations over past decades. Once the financial crisis is well and truly over, the time will soon come for Governments to work out how on earth they intend to honour these unwise contracts without consigning vast numbers of their population to economic stagnation.

http://www.askhowtoearn.com

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/

City’s financial sector to grow by 100,000

admin — Tue, 19 Jan 2010 14:50:37 +0000

City’s financial sector to grow by 100,000 new jobs within 10 years, predicts hedge fund.

London’s role as a financial centre is set to be boosted by the economic growth of emerging market countries, according to a top City hedge fund.

“The idea that London is going to full of tumbleweed in 10 years is not credible,” Savvas Savouri, chief economist at Tosca, told the Financial Times – contradicting many bankers’ gloomy predictions about the demise of the City due to the Government’s perceived hostility to the financial sector.

Instead, Mr Savouri predicts that London will attract at least 100,000 new financial jobs in the next 10 years, as the growth of the Bric economies – Brazil, Russia, India and China – works in the City’s advantage.

“There are too many aspirational economies that don’t have infrastructures of their own. We have an affinity with India, with the Gulf, even with China – via Hong Kong. These markets will want a western hub,” he said.

Boris Johnson, mayor of London, last week added his voice to the throng warning of a City exodus due to the introduction of a 50pc tax on top earners’ and one-off levy bank bonuses. They mayor suggested that banks could move 9,000 staff out of London in response. Some hedge funds – such as BlueCrest Capital and Brevan Howard – have already relocated staff to Switzerland.

However, Tosca believes that concerns over taxes and regulation are unwarranted. “Taxes are rising and regulation is being tightened elsewhere too.” Mr Savouri told the FT.

His forecasts are modelled in part on the growth of the Japanese banking sector in London over the last 20 years. A similar per capita representation of Bric economies in the capital would create 180,000 new jobs, he said.

http://www.workfromhomeinuk.com/

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/

UK business failures poised to rise this year

admin — Tue, 19 Jan 2010 14:41:01 +0000

British business failures are set to rise in the second half of 2010 as Government and central bank support measures are unwound, the corporate distress specialist Begbies Traynor has warned.

It said that Government help had provided companies with “welcome relief” during the recession but despite the support more than 140,000 experienced “significant and critical” financial problems in the fourth quarter of 2009. That was 6pc more than the third quarter, and 14pc fewer than in the same period in 2008, the report said.

Ric Traynor, executive chairman of Begbies Traynor Group said the situation was likely to worsen later in the year: “With tax and interest rates certain to rise, as well as increasing pressure on consumer spending, there is every reason to suggest that the insolvency peaks of this recession remain some way off,” he said.

“While business finance is expected to become more readily available during the first half of 2010, we anticipate a rise in the levels of financial distress during the second half of 2010, as temporary financial support measures are unwound.”

Despite the extension to the car scrappage scheme, the automotive sector experienced the largest rise in critical problems in the fourth quarter, up 26pc compared with the third. On the other hand the retail sector saw a 32pc decline in critical actions as the temporary VAT cut and improved consumer confidence resulted in a rise in sales over Christmas, the report said.

Begbies Traynor warned that while conditions in the construction sector had improved in the fourth quarter, it remained particularly vulnerable to the removal of Government support. More broadly it said that companies reliant on the public sector as a customer would also be vulnerable as spending cuts are introduced after the next general election.

“Government support measures are providing welcome relief to the UK’s struggling companies in the short term but they may exacerbate problems for some businesses as the need to repay debt catches up with them later in the year,” said Mr Traynor.

On a regional basis, Scotland was the only area in the fourth quarter where companies experiencing significant financial problems increased compared with a year earlier, up 2pc. The south east and east Anglia fared the best, with an 18pc reduction.

http://www.workfromhomeinuk.com/

http://www.telegraph.co.uk/finance/financetopics/recession/

Council tax rise needed due to local government pensions black hole

admin — Fri, 15 Jan 2010 14:07:23 +0000

Council tax will rise and services face cuts to plug the looming £60 billion hole in local government pensions, the Liberal Democrats have warned.

The “most vulnerable” people in society, including pensioners, would be hardest hit as councils attempt to reduce the pension deficit, the party said.

Council tax could be increased by hundreds of millions of pounds while the worst impact would be seen on local services.

Steve Webb, Liberal Democrat Shadow Work and Pensions Secretary, said: “The reality is that council tax will rise but it will be capped, so services will have to be cut.

“And if budgets have to be squeezed, then education and social services are the most likely to be in the firing line.”

The party claimed Freedom of Information requests made to pension fund managers in charge of local government pensions revealed 83 out of 87 schemes were in deficit in 2007.

And it suggested that since then, one in 10 funds have seen deficits up by more than 280 per cent.

The party forecast that all local government schemes would have a deficit of more than £60 billion next year.

Mr Webb added: “The Government has failed to grasp the nettle of local government pensions funding.

“A failure to set aside enough money and run the scheme responsibly means millions of people could be faced with cuts to vital services and council tax hikes, hitting pensioners especially hard.

“It’s totally unfair to burden people with these unexpected demands. Thanks to ministers sticking their heads in the sand many vulnerable people will suffer.”

However, Gail Cartmail, Unite’s assistant general secretary for the public sector, said the Liberal Democrats’ forecast was “far removed from financial reality”.

She said: “The Liberal Democrats are playing into the hands of commentators peddling the line that hard-working public servants are living in the lap of luxury once they have retired.”

The Government described the size of the deficit as “pure speculation”.

A spokesman for the Department of Communities and Local Government said: “This year’s valuation of the fund has not been carried out yet and is legally required to be based on market levels at the end of March – no one has any accurate way of knowing what that will be.”

http://www.telegraph.co.uk/finance/personalfinance/

Dreams of retirement disappear for millions

admin — Thu, 14 Jan 2010 23:27:50 +0000

Cabinet minister Harriet Harman proposed scrapping the compulsory retirement age. From the Government’s point of view, this change would have two happy effects.

It would cause millions of people to pay taxes for longer and also delay the point at which they ask for state pension promises to be honoured.

As regular readers will know, state pensions in this country are a massive Ponzi scheme which it would be illegal for anyone to operate in the private sector. National Insurance contributions deducted from workers’ pay packets this week are used to pay next week’s state pensions.

The fund has enormous and rising liabilities but no assets. Don’t take my word for it; Nye Bevan – one of the founders of the welfare state – jovially admitted: “The great secret about the National Insurance fund is that there ain’t no fund.”

To be fair to Ms Harman, removing employers’ ability to force employees to retire at the age of 65 can also be seen as an important extension of individual choice. No wonder Lord Mandelson lost no time in pointing out that the proposals are not official government policy.

Perhaps the old spin supremo is missing a trick here. Many voters might appreciate the chance to stay in work for longer, whether or not their employer still welcomes the wisdom that often comes with experience. Whatever his other interests, Lord Mandelson should not forget the grey vote.

The simple fact is that rising numbers of people are being forced by financial reality to work beyond state pension age. Dreams of early retirement are likely to remain just that for many people, as investment returns and interest rates fall while taxes taken out of pay packets and pension funds rise.

According to the Office for National Statistics, only 7.5pc of men aged more than 65 were still working in 1993 but 11pc did so last year; that’s an increase of 46pc. Women have experienced an even sharper increase in working beyond their state pension age of 60.

Just over 8pc did so at the start of this period but 13.4pc do so now; an increase of 65pc. Sadly, that gender gap may reflect the low-paid part-time work many ‘welderly’ – or working older people – find themselves obliged to accept.

Dr Amarendra Swarup of Pension Corporation, the company scheme specialists, said: “The lack of adequate preparation for baby boomers and the highest ever level of youth unemployment risk perpetuating the current pensions crisis for at least the next two generations.”

That’s a dismal prospect. As I may have pointed out in this space before, the only way to be sure you and your family are not personally affected is to save hard. That way, you can afford the luxury of choice about where and when to finish work.

Here and now, it seems unlikely that Ms Harman’s proposals will prove sufficient to keep her in her present job beyond state pension age; she turns 60 in July.

http://www.telegraph.co.uk/finance/personalfinance/comment/iancowie/