Pensions for the Economically Unsound
This rubbish about pensions everyone keeps talking is really winding me up. </economist with chip on shoulder> Please under no circumstances read the ensuing rant, I only wrote it to make myself feel better.
Here is the *actual* problem:
According to the system we're living with right now, if you are a member of the current workforce your National Insurance contributions are going, not towards your pension sometime in the future, but towards the pension of people who are retired right now. You pay for your parents. Your kids pay for you.
This model is nice and shiny when it is a neat pyramid shape with a large workforce supporting a small elderly population. However, since the birthrate is not keeping up with the OAPs' inconsiderate tendency not to die recently, we are now looking at an *upside-down* pyramid where a small workforce is supporting a very large elderly population (apparently there will be less than 3 workers to a granny by 2024 - it used to be 22). There's too many people drawing pensions and not enough people paying in.
Consequently, if you're a worker you're buggered, and it's only going to get worse. There isn't going to be enough money to maintain even the shamefully low state pension by the time you get to retirement age. Your contributions are going to go up, but the cost of pensions for increasing numbers of old people is going to go up faster.
The way to deal with an ageing population is this; instead of paying for your parents, you pay for yourself, by putting the money away in a fund and getting it back again when you hit retirement age. This (theoretically) guarantees that there's a pension for every person.
Problem is, are you going to *stop* paying for your parents' pension tomorrow, in order to put your hard-earned cash into a fund for your own future? Not likely, unless we want to explain why our streets are full of starving OAPs. In order to switch from the 'you-pay-for-your-parents' to the 'you-pay-for-yourself' model, one lucky generation has to pay for *both*.
Hence, this is a teeny little bit of a political hot potato. It is totally the case that no politician is EVER going to admit that this is the problem, because it would be electoral suicide. But it bloody well is and everything else being rabbited on about is window-dressing.
Turner's suggestions in words of one syllable or less:
a) extend the retirement age, which will take some pressure off the system by making the upside-down pyramid less steep; more workers, less pensioners. Some other stuff having the same effect, like linking the retirement age to life expectancy (good idea, dude. If you live to 120, does that make you an effective employee at 85??)
b) stop means-testing because it creates a poverty trap, ie. if you can get £80 per week in means-tested pension credit for doing nothing, it takes a pretty strong-minded individual to put the holiday fund into a private pension for fifteen years to end up with £85 instead.
c) GET PEOPLE SAVING by any possible means. This is just a gentle way of saying, congratulations, you are the generation that has to start paying for both your parents and yourself. Your NI contributions are almost entirely being eaten by the current elderly population (paying-for-your-parents) and you need to save more on top to have any hope of a decent pension when you retire (paying-for-yourself).
The paying-for-yourself model which he's heading towards, and which I think we will inevitably end up with, is basically a compulsory savings scheme administered by the state. 'Social insurance', I think they called it in my textbooks. Problem is, for a good ol' while that saving is going to be *on top* of the contributions we're already making for our parents, so it's gonna hurt.
And that is all. Done now.
Comments
Wait! Doesn't that mean that Logan's Run is still a viable solution to the problem? I propose (my age + 1) as a fair and equitable cut-off point.
Posted by: Monarda | December 2, 2005 01:30 AM
Personally, I posit Soylent Green as the only fair way.
Posted by: Calliope | December 2, 2005 08:45 AM
Funnily enough, despite my general crapness with economics, I did actually know all this! Because it's even worse in Japan, and our geography teacher while I was over there had a particular bee in his bonnet about it, so he hashed it out clearly enough even for me to understand.
As for employability at 85... *thinks about own grandparents* Um.
Posted by: Helen | December 2, 2005 01:05 PM