A comment was posted on the blog a couple of days ago in response to my discussion on what I call the fundamental pension contract. That it came from someone using the name ‘OneEngland' was not encouraging. Their absurd suggestion that I hate all things to do with the private sector revealed how little they know about me, my career and thinking. But what they have to say here represents a school of thought I have come across before and so may be worth addressing:
Your point Richard seems to be rely on the state for old age provision, but not how they would be financed? Don't say clamping down on tax avoidance as you know (although you will not admit — its a chimera).
I'll ignore the last point: it's wrong as it's evasion that is the issue to really address. I'll address the first one instead.
The point is that not that we have to rely on the state. My point was that what we have to rely on is the goodwill of generations to come to provide our pensions. My argument was that it is quite literally impossible to save for a pension, because savings are ephemeral and inclined to disappear unless they represent underlying value, which I have suggested is not true of most current savings media. If in doubt, wait to see what happens when markets finally realise that oil has to stay in the ground if the planet is to survive.
What the fundamental pension contract suggests is that we have to invest for our pensions, and not save.
And we have to hope we invest wisely so that the next generation can use the real capital that we create - the infrastructure, means of production, knowledge and other resources that actually underpin the creation of real value - in the course of their lives so that they can afford to forego part of the income that they generate to maintain us in our old age, because that's what actually happens in the real world.
Savings, if linked to something useful - as I suggest those in the Green New Deal might be - would permit this, in part. But if the next generations find no use for the savings media we have used they'll not buy them, come what may. And that will wipe the savings out. Then the state would have to intervene. And it's my suggestion that so much of our saving now represents nothing of real value or is even socially destructive that this state intervention will be required.
And what if the state did not intervene to redirect the earnings of those in younger generations to the elderly? Let's be blunt, if that does not happen the elderly may well die early, uncomfortable and distressingly.
Asking the question ‘how do we finance pensions?' is, in that case, an exercise in missing the point. The reality is we have no choice but accept that the fundamental savings contract exists; that pension ‘saving' must actually be about pension investment for our real future; and that if we fail and refuse to fund the elderly what we're actually saying is that we'll simply let the elderly die.
I don't think we will, and as such I think OneEngland's question is misinformed. But I have had conversations with people who have responded to the argument I have represented here with the suggestion that if the elderly cannot provide for themselves in the future then we really should just let them die. Don't doubt that a nasty and brutal alternative narrative about our future does exist, and we have to be willing to address it.
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Firstly I agree that a savings based provision should underpin pension provision but I also have to raise the old chestnut of the narrowness in which the actuary role is defined and its corrosive effects of hollowing out all of the value of even GND activity (wages, budgets) in order to uphold the value of any pension fund. This has got to change, it really has.
However, I have a few observations and comments to add.
I’m sick to death of hearing that we cannot afford the elderly. These are people who have been our parents and relations; they have fought and died for their country or upheld its security; they have created tax revenues for the Government from their lives; they have contributed to GDP (such that it is), have contributed (do contribute) to civil society and have created things that last and are useful even now. Many don’t need to use a hospital until their more advanced years – hospital use goes up from about those of 65 years+ if I remember the last ONS statistics from 2011.
So why does this seem to be forgotten as they (and we) advance into old age? Why do we keep being told there is timebomb or problem when any Government can see that a rise in the birth rate must at some time mean a corresponding rise in the elderly population in the future so therefore there is time to plan? Why the portrayal of the elderly as a drain on resources – resources that they helped to build?
If the Government is committed to pensions and pensioners, then why can’t it just print the fucking money? I thought that human society was that which supplanted the harsh regime of nature where the elderly animals get picked off and eaten. We were supposed to be better than that. Different.
Weren’t we ? Are we? I mean, really?
And just like MMT, GND, PQE, printing the pensions money creates jobs (I am sick of seeing under paid, under valued people looking after our elderly), transactions (VAT), R&D, care, new homes, adaptations markets – I could go on.
We should see pensions as an investment in humanity, jobs, tax returns, R&D – in the economic benefits of looking after our elderly folk, whose holidays and cruises support jobs for gods sake and whose care creates economic lives for others.
But no – we’d rather gives billions of pounds of tax breaks to greedy private pension funds and underfund state provision by knocking final salary schemes back to average schemes to save money. And then we come onto the crisis of Adult Social Care – seen as a drag but in fact is a market if fully budgeted for would create wealth and opportunity for those involved and incentivised to provide for it if it were provided by the State and not the crappy short term private investment sector and their greedy managers and directors?
When are we going to wake up to the benefits of spending money? When are we going to wake up from the nightmare that is underfunding that deliberately corrals us into the arms of the private sector on the basis that ‘we’ cannot afford it?
As you can tell, I’m heartily pissed off with all of this. We ought to be ashamed.
We are ashamed
May I add a couple of points for OneEngland to mull over? As an ‘elderly’ taxpayer it was my taxes when younger that helped pay for his education, his medical care, even for the Child Benefit that his parents received as well as a myriad of other advantages that he no doubt received that was not available to my generation. Neither should he forget that one day he too will be one of those elderly and another ‘OneEnglander’ may be suggesting that if unable to provide for himself he should be allowed to die.
If it is the case that he considers himself safe because of savings and investments he should perhaps remember that there are sharks out there willing to erode any worth they may have. https://www.thetimes.co.uk/article/boris-johnsons-donor-crispin-odey-eyes-brexit-jackpot-with-300m-bet-against-british-firms-0lwjbnqsn.
I visited Cuba several years ago and discovered that all pensioners are paid the same state pension and there is no work related pension for servants of the state. Thus a retired airforce general who had fought in Angola and supervised the construction of an airport there and managed it for several years received the same pension as a bus driver. The pension was equally low for everyone and unless pensioners could fall back on their children for support there was a bleak prospect of starvation. There is a real risk we could end up in the same boat but reducing the pensions of relatively well off state retirees and averaging out a better pension for all is unlikely to find favour with civil servants and MPs. But when unwritten constitutions evaporate and currencies collapse who really knows how it will all turn out. I’d prefer an egalitarian,co-operative mutually supportive solution to the mad max scenario.
May I correct a popular misconception here? First: not all Civil Servants are equal, some are more equal than others. So you have the ‘mandarins’ at the top of the chain who are well paid (perhaps even worth it when they have to try and keep the correct lot of political masters informed) and then you have the 99% or so who actually have to do the work.
I was one of the 99% and can assure you that the Civil Service pension is not only not that generous but that we paid for it – twice! First it was paid for through Superannuation deductions from salary, secondly annual pay was negotiated by reference to the previous years salary of those in similar appointments in the private sector so any increase was already a year out of date before we even saw it.
The last comparison I saw was that out of the current members of the EU the state pension in the UK was second bottom. Now there is something to get angry about.
After decades of Left-Right arguments about how to fund and afford state pensions both sides came together and created Kiwi Saver. You pay in, your employer pays in and when it isn’t taking a payment holiday, the government pays in. The aggregated monies have been pooled into a Sovereign Wealth fund.
My youngest and her husband funded the deposit for their first home from Kiwi Saver, you are allowed to take money out for that purpose. Daughter became a member while working part time jobs at university and urged her then boyfriend, now her husband to join. They have prospered and are still paying in while their house value rises.
There are big infrastructure projects where they live such as a brand new replacement hospital which will mean incoming workers looking for homes which will push up values despite the council opening more land for housing in anticipation. So they are sitting pretty, especially since they have a million dollar view and it is almost equidistant to their respective workplaces.
Investment makes sense to me. In Scotland it would seem to be we need to invest in people – the population has never recovered since the clearances, and sheep are not really adequate compensation. As far as I can tell, we really do need the free movement of people that the EU membership gives us, as this point in time at any rate – I think independence and a peaceful state will see the population numbers increase in time – but in the immediate here and now, it is imperative we have working age people coming here to work. I think this is the biggest threat from brexit to Scotland, that we will have no choice on how many people we can have coming in to live and work – and pensioners are going to suffer.
My mum has been told to retire this year, at age 70, and she’s not keen (madness!), so I’ve been reminding her that retirees DO contribute a lot to society, from babysitting duties, to volunteer work, to professionals that will still do part-time work and training (well, until the uk government slashed the lifetime earnings limit and made it cost more for them to do this – so I’ve heard). We need to value these contributions to society, and make retiring worthwhile, with a decent pension (that I can look forward to,,,).
Scotland has a productivity issue, supposedly
Training is at least half the solution to that
Is this Dominic C. “Testing the waters”….?
I don’t know if you’ve seen this. A long read but interesting.
https://politicsandinsights.org/2019/08/26/the-tory-karoshi-cult/
I will try to read it when I get time