While reading this, you might be thinking to yourself, 'This won't affect me, so why should I care?' but bear with it because this affects everyone in different ways. Also, remember that this is a hypothetical scenario discussing what if this did happen and how would it affect everyone?

I recently was listening to a podcast on Spotify which was completely unrelated to pensions but the one part of the podcast I remember, including the name, was them talking about how unaffordable pension schemes are. They went on to say that phasing (public) pensions out now, which is what seems to be happening anyway, is the way forward and replacing it with something else.

The annoying thing is, I've been through my podcasts and YouTube history and I can't find the small section of the podcast/ YouTube video so unfortunately, I don't have any evidence that this was ever even talked about. For all I know I could have dreamt about it, but even if that's what happened, I think this is definitely worth talking about as the potential savings for economies worldwide is staggering.

You know a change is needed within the system when governments start changing their ideas of how to run things. The current public pension scheme in the UK works by people paying their National Insurance(NI) tax. The NI funds pensions, statutory sick pay, maternity pay and unemployment benefits. However, it does appear that the government are pushing for private pensions over public ones. These private pensions often have companies match the investment made by the individual, up to a certain percentage. Now when you retire, the pension no longer comes from the government which take the burden completely off the taxpayer and onto the institutions that set up the pension funds. 

However, with public-funded pensions, you know or are at least very very sure that by the time you come to retire, you will have a pension, even if future governments up the retirement age higher that would mean you retiring at 80. Now when you look at private pensions, the thing that comes to my mind straight away is when BHS went into administration and The Pensions Regulator (TBR) had to step in to protect these funds. At the time TBR TBR secured a £363 million cash settlement with Philip Green in order to save the pension fund. However, Dominic Chappell(DC), the owner at the time and had been for 13 months failed to hand over vital documents to TBR which was against the law (Pensions Act 2004), which he was later fined for and ordered to pay £9.5million to TBR to fill the shortfall of the pension fund. The only thing is that DC claimed bankruptcy and told the courts he couldn't afford to pay the fines or the £9.5million. This just erodes public trust in private companies to be able to make sure that their retirement funds are safe and when they need them. This is also just one example, feel free to research into more examples.

2019/2020 saw around £100bn being spent on public pensions, in the UK. Personally, I think that is an insane amount of money. When considering the population of retirees is increasing, this figure is going to rise and we can't bring that down apart from using private pension funds, which is why private pensions are now a legal requirement. It's just not affordable to continue with public pensions alone.

As I discussed at the start, you may be thinking how does this affect you? Having public pensions affects everyone in at least these two ways. Firstly, £100bn, imagine if the UK taxpayer didn't foot the bill for this. Could we finally fund the NHS properly? Perhaps we could fund policing more.

The other point is inflation. Imagine, you haven't received a pay rise in 10 years, but the cost of living (inflation) has risen 10% (1% a year). Why does inflation happen? Money printing & borrowing. If we are in debt we have to print & loan more money to pay for the holes, which I don't think people understand enough. Printing money and being in debt as a nation is like a silent tax that nobody mentions, not just a small one. 10% tax but no-one disagrees or even acknowledges it. This is what happens when there is a mega amount of money that needs paying for but we can't afford it.

Here's the scary thing. On average since 1989, the inflation rate of the UK per year increases by 2.5%. That's including years such as 1990 & 1991 which had rated as high as 7% & 7.5% respectively. So even looking at the past 10 years inflation has increased on an average of 2.13%. As an example, in my lifetime, the value of £1 is now pretty much worth £2. So in my lifetime, the purchasing power of the pound has almost perfectly fallen in half. This is why the value of your Fredo or Mars bars have increased over the last x-amount of years. Now to put that into a savings perspective, if you had £100,000 saved in '95 and just left it, you'd still have £100,000 but compared to what you could have bought in '95 you can now only afford half of that, just taking into consideration inflation.

So what different options are there? The option that I've heard somewhere, and as soon as I've found it I will post the link to whatever it was, is that for every baby that is born, £6,500 is put into a savings account. This savings account is used to build money on the stock market. More importantly, invested in dividend-paying stocks. Now if we just have a look at how many babies were born, on the ONS website for 2019 there were 640,370 new births (Births in England and Wales - Office for National Statistics (ons.gov.uk)). Therefore 6,500 * 640,370 = 4,162,405,000 (£4.2bn). The pension fund for the year would cost us £4.2bn per year, give or take depending on the number of births.

Now if we think about just that staggering amount of money being saved, just there, it's around £95bn. That helps everyone, from the UK taxpayer saving money, potentially part of that money going into other departments and some of it going to paying off debt or even just taking cash out of circulation and destroying it to help to remove the trillions of pounds that have been senselessly printed.

I just want to point out that there are times where I think printing money is necessary, during this last year with the Covid-19 pandemic, I would argue that this was 100% needed to support the economy and stop the spread of the virus so that we can all get back to normal ASAP. I just needed to say that because I'm not bashing government policy on trying to stop a virus from spreading.

I just think other times, we just need to spend within our needs, not bail out companies that have over-leveraged themselves and recklessly put people's livelihoods at risk. If you hadn't guessed that was a nod to the banking crisis in 2007-2009, which is where our current debt problem started.

You're probably reading this thinking why is he ranting about this now. But it's important to know why it's bad for the country to go into debt, why we need to pay off our debt and why we can't just keep saying "oh the government will pay for it". The government doesn't pay for a penny of anything that happens. The UK taxpayers pay for everything.

Getting back to the new form of pension. We'll give it a name, the National Future Investment for Pension (NFIP). Please, if anyone has a better name for this then leave a comment! So, the NFIP. How can the £6,500 first investment give us enough income to retire with? With no future investment, compound interest would fund everything. According to 'Which?' a comfortable retirement spend each year would need £19,000 (How much will you need to retire? - Which?) per year.

How many years with compound interest would it take to turn the first deposit into the magic £19,000 per year? Well, assuming we can receive a very modest 3% average dividend yield per year and that there are no price increases in the stock market, which is extremely unlikely, considering the amount of money being put into the stock market through these NFIP's, it would take 154 years to grow into earning £19,361.50 per year.

So, there you go. go figure a way to live until your 200 and you have almost 50 years of happy retirement right there.

Or, we could just factor in the average growth of the FTSE100 per year which is around 7%. Without having to invest a penny into the NFIP, it would take 36 years to become financially independent and to be able to comfortably retire within this scenario around 20k per year. This is all of course, depending on the markets continuing to grow, which is what they have done since they began.

You may have noticed, I haven't mentioned inflation. The reason for this being, you don't need to worry about inflation if you don't have cash. Investing into assets, the cost of inflation gets factored into the growth of the stock, negating this issue.

Another positive would be, if your working until 36 anyway, you can put extra money in and retire way more comfortable, or you can stay working and continue to earn even more! The later you leave retirement the more you will retire with and as the years go by, each year makes more of a difference to your retirement fund. For example, use this link for a compound interest calculator and try with high amounts (£1million) compared to low amounts (£10k) over a 36 year period Compound Interest Calculator (Daily, Monthly, Yearly Compounding) (thecalculatorsite.com).

You can see that as soon as you start adding 0's your money really starts to work for you. Now the benefits of this aren't just to save taxpayers money. If everyone in the country is monetarily invested in the stocks of this country, surely everyone wants what's best for these stocks. This could increase productivity, increasing jobs and the value of stocks from investors. This would have a positive effect on share prices, meaning everyone's retirement funds are just going through the roof and either people can retire earlier, or live off of an even higher pension whilst working longer.

Now that everyone in the UK is on the same team this actually might have some very welcomed side effects, since everyone would be invested in the same companies and for the same or similar reasons, would racism or any other hate crime become less prevalent? I would think maybe it would have a positive effect, maybe not straight away but over generations definitely. So not only is this idea a way to solve an ever-increasing pension budget, but it could also be a way to create cohesion throughout the UK, not just London, not just the south of England, not just England but throughout each nation of the UK. It would be impossible to create bias and funding issues, it's just £6.5k per baby born. The only person who can touch the account would have to be the person whose name it is in. Not the parents or anyone else, and only after it reaches a certain value.

What are the negatives? There are a few negatives to this. What happens if somebody blows all their money? Is that it? Will they receive any financial help? If they did receive financial help, what is the incentive for not blowing all the money?

Personally, I would like to think that this is it, there is no more money for support, because if you blow it all then that was your choice, if you chose to live within your means that is also your choice. I would think it would be dangerous to hand out another security net because it would completely negate the point of this and slowly but surely the number of people blowing their fund would increase. But if this was the case, what about the moral issue of if someone has blown everything, we surely can't just leave them out on the streets with no food, water or shelter, the basis of human rights? Then again, homelessness is a big issue now, and it seems like that is allowed to happen without too much care from the majority of people.

A major negative for me for this idea is that it is a massive project for the future. If it started now, we would be paying for two pension systems simultaneously. Although, in real terms, it wouldn't be much of an increase from the original pension structure.

How gutted would you be if you were 1 now and when you turned 40 your mate, a year younger, is retiring on a very cushy income. It would suck so bad, but it would have to start somewhere or it would never happen and unfortunately, that's life.

The other thing is, the guy who suggested this, is an American billionaire and heavily invested in the stock market so that person would stand to gain a lot if this did happen. Which depending on your point of view is a terribly evil idea or it's a win-win.

Overall though I do think that something drastic does need to change with pensions. It is extremely expensive to run now and that money would be life-saving if it was spent on the emergency services instead. I think that this is a good option I like the thought of it bringing the country together as well as potentially offering the advantage of early retirement. Another thing that goes for it is, if there are fewer jobs in the future, this would surely help negate that issue in the long-term as when parents die, they could pass their funds down and I think in the future most jobs will be automated anyway. We have to think about how fast technology is advancing and something drastic would be needed for us Humans to reap the rewards of technology.

As soon as I find the source from where this idea came from I will update this post.

Please feel free to comment your thoughts on this idea and if I've missed anything you feel is important, let us know in the comments below!