Wednesday, 13 August 2014

Employment rises but wages fall. What about pensions?

Employment rises but wages fall. What about pensions?

The news that employment is rising but wages are falling make the Bank of England postpone the announced rise of interest rates. Less income also means less savings for pensions and the realisation that with lower wages the aspiration of buying or renting homes might be nothing more than an aspiration when banks are only lending the equivalent of three annual salaries when the amount required to be able to have a mortgage is not less than eight annual salaries.
The gap between the monies available for pensions and the monies that would be required to be able to provide pensions is also growing at a faster pace than ever before because savings are not a generating high yields while interest rates remain relatively low.
Therefore, there is a vicious circle. People earn less. Because people earn less the Bank of England cannot take the risk of putting up interest rates without facing the possibility of millions losing their homes because they cannot afford monthly payments at higher interest rates. While this is happening, people who earn less save less and get less interest payments for what they save. Putting up salaries would mean less capital available to employ more people and having less people employed means having to make more welfare payments.

The situation is not sustainable because sooner than later retirement age will come and millions of people who earn little and have no savings will have not enough pension funds or no pension at all as retirement age is rising because there is not enough money available to pay pensions.

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