The FT has published an article with the headline:
Can Europe still afford its generous state pensions?
At the core of the argument the piece presents is this quote, reproduced in it:
“The root of the problem is: how do we fund increased spending on defence, the energy transition and new technologies, while spending so much on pensions? … If we want to keep spending so much on pensions then we have to raise taxes.”
That comment is not unusual. It represents what has become the default story of our time. The suggestion is that Europe is ageing, pensions cost more, and therefore the state has less room to act, meaning that the public must accept that something has to give.
What interests me is how quickly this sequence of claims is presented as if it were a simple fact. It is not. It is a political framing, and it is doing a great deal of ideological work in the background.
Of course, European societies are ageing. Of course, that changes the arithmetic within pay-as-you-go pension systems of the sort most European countries, the UK included, have. And of course, governments that have spent decades weakening their own tax bases, privatising social provision, and encouraging rent extraction now find themselves with rising costs and too little apparent capacity to manage them.
But it does not follow that pensions are the problem. On the contrary, state pensions are one of the defining achievements of the modern welfare state. Invented by Bismarck, of all people, they are a promise that old age will not mean destitution, dependency, or fear. And they were never meant to function only when the demography is convenient. They were meant to exist precisely because human lives do not run to the demands of Treasury spreadsheets.
The more important point to note is this. When the Financial Times implies that if we want to keep pension spending high then we have to raise taxes, it slips in an assumption that is almost never made explicit. It implies that the only way to manage pension spending is either to cut it or to increase the tax burden on those who work. It also implies, by omission, that wealth, and the huge unearned incomes it generates, are largely untouchable in this and any other debate on the contributions to be made by way of taxation to managing the finances of the state.
That is the real issue here. Pension reform has become code for telling ordinary people to work longer, accept less security, and shoulder more risk, while the owners of property and financial assets continue to accumulate returns with remarkably little obligation to the societies from which those returns are extracted, and yet it is not pensions that have undermined Europe's capacity to cope with ageing. What has undermined it is chronic underinvestment, weak wage growth, and a housing system that facilitates rent extraction while the state refuses to act as a builder of productive and social capacity. If the economy cannot support its pensioners, it is not because pensioners exist. It is because too much of the economy has been structured to serve wealth rather than wellbeing.
If European states want pension systems that endure, the answer is not austerity by demography. It is to rebuild real economic capacity, and to tax income and gains from wealth, and even wealth itself, properly. That is not an extreme position. It is what a serious society would do. The trouble is, we do not live in a society that is seriously tackling the issues we face. We live in one that spends its time trying to evade them and their consequences. That is what has to change, not pensions.
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As per I agree.
“If European states want pension systems that endure…. rebuild real economic capacity.” (For the purposes of this reply I will include the UK in “European states”).
Ed Davey yesterday was warbling on about the success of Auction Round 8 (AR8) in which a number of off-shore wind projects were given Contracts for Difference.
RWE (a German energy company) was one such company. It’s going to sell 50% of its project to KKR. Why?
Applying “liberalism” (& “markets”) to this action – RWE has a perfect right to sell its property to a financial rapist. But such action does little to “rebuild real economic capacity”. A few years back, I had a meeting with the largest pension fund in Denmark – we talked about investements in off-shore wind – lots of humming and hawing (mostly about risk). The pension rabble still can’t get their act together & neither can govs’ investing in assets that perform and which “rebuild real economic capacity”. Instead we have a bunch of ghastly Americans cruising over & buying up Euro assets. (Guessing: bet KKR funded that great lover of wind turbines – Trump). Given the events in Greenland (& Iceland – the orange moron wants that as well) , US investments into Europe should be banned. Total ban.
“US investments into Europe should be banned”. Totally agree Mike, having read Vassal State: How America Runs Britain by Angus Hanton was both a confirmation and an eyeopener for me. Having said that, achieving it is going to be a long and extremely difficult process.
My pension date is still many years in the future, but I’ve long since come to accept that my state pension will be sacrificed to “markets” and the gaping maw of military spending.
I am confused. I worked until I was 68. I receive my state pension. The funny thing is I then spend it in local shops and cafes. The owners of those shops and cafes then spend the money that I and others give them to pay their suppliers and staff and hopefully keep a little bit for themselves. So my state pension does not vanish into some black home but circulates within the local economy. If taxes are raised to fund political warmongering (and its obvious beneficiaries) that money will no longer circulate in the wider economy. I really cannot follow the “logic” of the FT article or have I missed something?
By the way, I saw with horror a recent photo of our supposed Foreign Secretary and Defence Secretary hand in hand childishly striding along the ramp on the deck of an aircraft carrier smiling from ear to ear and looking so smug, self-important and self-satisfied that it got me thinking: why are the politicians that are so eager to wage war the ones who never actually fight them? When I was young we had politicians like Denis Healey and Ted Heath (from opposite sides of the House of Commons) who had fought in WW2 and knew only too well the horrors of war. I doubt if they would have posed for such a photo opportunity.
Much to agree with.
Martin, your last point is spot on, and further, would the PM, who has to be the one who declares war (not me or you or anyone else in this country) send his children off to fight alongside his fellow citizens he has just committed to be canon-fodder?
Under previous Monarchies, it would be the done thing even for the King to lead the charge, and any of-age sons to join him. Can’t imagine Charles or William doing that – well ok Harry did head to Afghanistan, but he wasn’t sent by Charles, but volunteered as I understand it (or rather, followed deployment orders).
It is a curious thing that wars are only started by 1 person – the leader of the country beginning the war. Yes propaganda is used to coerce the population into thinking war is inevitable and necessary – I’m sure many will have seen the WW1 posters of German soldiers bayonetting babies, a trope repeated for Iraq a few decades later.
Without power they would probably just be a bloke down the pub who picks fights with anyone.
What can we do to improve the odds of keeping such sociopaths out of power?
Careful what you wish for! Don’t forget Andrew is still in the line of succession!!”
Possibly slightly off topic,but last night I attended a talk by our local philosophical society in which the speaker proposed Growth an Optimistic View. In the discussion afterwards most of the comments were largely agreeing with him and only minor technical points such as defining GDP and whether population growth was a factor etc. I was the last person to comment and I really had a go at him for down playing the environmental costs and ignoring the climate crisis
He ridiculed Greta Thunberg saying the planet only had finite resources
.Also challenged him on government spending and that the government can create as much money as it wants only limited business real resources available. He knew about modern monetary theory and tried to ridiule this a(Weimar republic etc) but he was visibly shaken and obviously never been challenged before.
Good work by you, by the sound of it! This is what we need to do.
Do we want an economy ‘structured to serve wealth rather than wellbeing’? This question nails it for me. An economy guided by the continued and protected accumulation and concentration of wealth, by an already wealthy few, or guided by the politics of care – for the many.
Thanks
Going off at a slight but related tangent Richard, could you explain how UBI would interact with state pension and pension credit (watched your video regarding UBI yesterday)
I hope Howard might do this…
My view is that if pensions could be conceived at all then they should exist today. It is like the NHS being conceived – are you sure that when it was created they did not know population growth, or baby booms would turn into pensioner booms? There was a commitment to it because the benefits were known and had been fought for.
So what has changed?
Greed. There is more greed today that there ever has been, because capital is too powerful. And we have let that happen in broad daylight. And this greed is a disease called pleonexia, the coveting of what belongs to others.
And the state seems to think that it’s job is to help wealth reallocate resources as the same wealth fund the politicians who run the state. This is corruption and that too has increased.
It is these two factors that destroy pension and health services and much more – not the ideas themselves.
Greed and Corruption. Remember that.
Well said Richard – I whole heartedly agree.
“If the economy cannot support its pensioners, it is not because pensioners exist. It is because too much of the economy has been structured to serve wealth rather than wellbeing.”
For pensioners we could substitute any marginalised or vulnerable group we choose.
It is always political.
Until this is rectified we can not genuinely claim to live in a civilised society.
As a woman who has had her pension age shifted up by 7 years, we have two other problems. Firstly our very ageist employment market that makes it really difficult to get a decent job once you pass 50. And secondly the difficulties working into your late 60s with health problems.
I feel like we have a 3 tier system. Those in their 70s/80s who retired in very good health many with generous final salary pension schemes. Those in their 50s and 60s being expected to work many more years many in declining health and having to either work part time and/or in minimum wage type jobs. And those in their 40s or below with massive student debt, expensive housing etc who see retirement as an unobtainable dream. But all we hear about is poor pensioners, many of whom are anything but poor!
Your categories are broad, but also bridle make sense.
Yes, they’re not exact, but whilst I might feel aggrieved at my loss of pension, I’m aware there’s a generation below in a much worse situation. We can’t keep raising the pension age and not taxing pensioner wealth. And public sector pensions are only deemed unaffordable because of those already retired with very generous final salary pensions which many got in their 50s or very early 60s.
Pensioners come in as many varieties as non-pensioners. Yes, those relying on State Pension only are in (or close to) poverty those who have been beneficiaries of huge asset price rises over the last 50 years are some of the wealthiest.
My starting point would be that we need a “living pension” (whatever that level might be – I am sure there has lots of work been done on this)… but it ought to be linked to the minimum wage and the threshold for income tax. Why should pensioners live on less than the minimum deemed needed for workers and why should those on the minimum deemed required to live have the income reduced by tax.
From there, we need fair taxation of pensioners – ie. at the same rates as workers. So, abolish NI and stick it on income tax. Get rid of the nonsense where allowances are withdrawn as income rises and just raise the headline rates.
Now, I know you prefer an “investment income surcharge” over NI abolishment. Would this apply to pension income?
Clive
The FT did an article the other day on why you can live on less in retirement.
They gave four reasons. First, the house is apparently being paid for. Second, the children have left home. Third, you are no longer saving for retirement. Fourth, pensioners get lots of discounts apparently, although I only seem to have a rail card.
The logic was, of course, crass. Those on a low income usually do not own their house, although I recognise that housing benefit does still help in many cases. Second, if you are on very low income, having children at home might improve economic viability, and not reduce it. Third, those on the basic pension never saved for retirement, because they could afford to do so. Fourth, claiming a discount presumes that you can still pay the balance owing. The trouble is, people who read the FT both form pension policy, and think that none of this applies. So, the basic state pension does need to be higher, as you rightly note. Those dependent upon it have real need.
As for tax, the NOC exemption makes no sense. And, when it comes to investment income surcharge a higher allowance might be appropriate for pensioners, but there is no reason why somebody earning above median wage equivalent should be exempt from it.
Of course the UK state can afford to provide higher state pensions to lift a considerable number of retired people out of the poverty trap.
Most of the money will be spent in the economy and recovered by the government in due course.
The UK state over the last 40 years has manufactured all of the public service financial problems by stating there” is no money”. Using deflection tactics such as benefit scroungers, the public sector unsustainable pensions bill, asylum seekers and so on as the reason not to actually deal with the problems created by the state.
Take universal credit introduced by Thatcher. It was a state subsidy to employers not to pay a decent living hourly rate.
Utterly mad.
The median salary is £27k, assuming you work a full week 52 weeks of the year, in the UK. Not enough to live on.
But the financial elite get huge subsidies because without them they cannot survive and might run off other countries.
We all know that the banks will be bailed out when the next crash comes. Nothing will happen to the negligent directors.
Governments have parroted the “UK is open for business”. I am not able to think of many UK businesses that have been sold to US hedge funds that are still trading normally. Most that are left are up to the eye balls in debt.
Yes, the UK government should take the structural issues seriously and not continue to kick things down the road.
Gross median pay is now £39,900. ONS data, April 2025.
My fathers employers, The Midland Bank paid him his salary when he was in the Army from 1940 to 1946. now I thought that that was a perk the middle classes enjoyed but even Percy Parsons, porter at Edington Junction (Change for Bridgewater) on a railway described by Betjemain as passing through unpopulated Somerset had his wages paid by the impecunious Somerset and Dorset Joint Committee when he was called up for WW2.
Now Autre Temps Autre Mores and of course there was an existential threat to the Country but if in a time of national emergency many employers were able to continue to pay staff who had ‘joined up’ can somebody please explain why a much richer nation cannot afford to pay its pensioners?
Good question.
Clear confirmation here if any was needed that the FT’s ‘we’ is not the UK ‘us.’ The most falling thing is that they think ‘their’ money runs the country whereas that’s ours too.
My question is slightly tangential but relates to the ‘private sector creates the money and we have to tax it to spend it’ myth.
When a bank ‘lends’ money into existence….. and then destroys the principal off the ledger when repayments are made while also extracting it’s profits from circulation with the interest payments…. 1. Does this mean that the private sector does not actually ever expand the money supply with repaid lending. 2. If a debt is bad and needs to be written off…. Has the bad debt expanded the money supply? So that government expands the money supply with necessary spending and banks expand the money supply with poor lending decisions? Is there something I’m missing? 3. Do the banks have to use their own money to write off the debt so that money is destroyed out of existence and they have not in fact been allowed to expand the money supply through bad loans? So that it affects their profits and that is supposed to be the incentive for being careful with lending decisions?
When a bank makes a loan it creates a matching deposit. That does expand the money supply at that moment. When the borrower repays the principal, the deposit is reduced and the principal is extinguished: in effect that part of the money supply is destroyed. So if all loans were repaid in full, bank lending would not create a permanent increase in money: it creates money temporarily while the loan is outstanding.
Interest is different. Interest payments are not new money. They are a transfer of existing money from borrower to bank. The bank then uses that income to pay wages, dividends, bonuses, overheads etc. So interest redistributes money towards the financial sector; it does not mechanically expand the total.
Bad debts are more interesting. If a loan is written off, the money created when the loan was issued has already been spent into circulation. The bank then takes a loss: it reduces its equity/capital. That write-off does not destroy the deposits already created and spent, unless it triggers a wider contraction of lending. So yes, bad lending can leave more money circulating than would otherwise have existed because the principal never gets repaid.
Banks do not use their own money in a literal sense when writing off loans, but they do absorb the loss through reduced profits and reduced capital. That is supposed to incentivise caution, and regulation reinforces this through capital requirements. When banks are bailed out, that discipline is weakened, which is one reason financialisation keeps recurring.
Hmmmmmm … interesting…
My questions are addressed to the contributors in general rather than you specifically Richard as I know I ask an awful lot of them and you have a lot of other work to do ! 🙂
Could it create a more honest financial system if banks had to write off bad loans pound for pound with their own money …. from the interest collected on loans and capitalisation from shareholders?
Would this result in heavily reduced lending? Or extremely high interest rates for money borrowed from private banks even when central bank interest was low?
Would this result in asset price deflation and more affordability of housing for workers?
Or just in high borrowing costs and credit crunch and exclusion of average people from the mortgage market? Could we separate the housing market and mortgage lending from the wider banking system to deal with this? Is that what Fanny Mae and Freddy Mac lenders in the US were? If so… clearly this does not seem to be without risks…
Could it however help to clarify to the wider public that in fact banks do not play the central role in money supply creation and that therefore we can exercise much more imagination in how we make government spending decisions?
I am off to listen to the Bretton Woods book while I do the laundry, a woman’s learning is never done 🙂
🙂
Or wait, have I misunderstood, do they in fact have to match losses pound for pound already and it’s the bailouts that upset this discipline?
Or no .. wait… the profits are the shareholder dividends not the interest!
What all these comments circle around — pensions, taxation, wealth, bad lending, intergenerational fairness — is the same underlying truth: the UK hasn’t become unable to support its pensioners. It has become unwilling to structure the economy so that it can.
The supposed “pension crisis” only exists because the economic foundations that should support pensions have been hollowed out for decades. When you suppress wages, financialise housing, let asset prices inflate beyond reach, and treat wealth as untouchable, you inevitably end up with a system where:
younger people can’t save
older people are pushed to work longer in worse health
pensioners relying on the state pension live in poverty
and those with large asset gains are insulated from all of it
That isn’t a demographic problem.
It’s a political choice.
The same applies to the debate about whether pensioners “need less”. That logic only works if you assume a world where everyone owns their home outright, has no dependants, and enjoyed a lifetime of stable wages. That world never existed for most people — and it certainly doesn’t exist now.
The real divide isn’t between generations.
It’s between those who have been able to accumulate assets in a system designed to inflate them, and those who have been locked out of that system entirely.
And that’s why the FT framing is so dangerous. It pretends the only options are:
cut pensions
or raise taxes on workers
while quietly ignoring the vast pool of unearned income and accumulated wealth that sits outside the conversation entirely.
If the economy cannot support its pensioners, the problem is not the pensioners.
It’s that too much of the economy has been restructured around extraction rather than contribution.
Fix wages, fix housing, fix investment, fix the extraction economy — and the pension “crisis” disappears.
Keep pretending the issue is demographic inevitability, and we’ll keep pitting generations against each other while the real beneficiaries walk away untouched.
Okay…. further thoughts on unpayable debt:
Am finding out things that appear astonishingly unjust from this website:
https://www.investopedia.com/ask/answers/070815/why-do-banks-write-bad-debt.asp
If I am understanding this website correctly:
When unpaid debts are ‘written off’, the borrowers who can’t afford them are still liable for the debt – these are sold to collection agencies.
But:
“Writing off bad debt helps banks manage tax liability and improve financial statements.”
Apparently they need to keep 5% reserve to cover bad loans but when that runs out they can just write them off their books – they don’t need to cover those unpaid loans by reducing dividends and using the ‘capital invested’ in the company when shares were sold. I suppose that is the Limited liability structure versus the partnership?
And even that 5% can be written off against tax on profits so the banks’ shareholders actually avoid losing any money at all???
So even in the absence of bank bailouts, are banks structurally incentivised to recklessly inflate the money supply in pursuit of loan interest? And at less actual costs to themselves after tax ‘optimisation’ than the interest ‘rents’ they hope to extract with reckless lending when that lending goes wrong?
I hope I am horribly wrong here and that there is in fact more restraint structured into the system.
Will keep reading to try and understand this……
Grateful for any help from anyone who has the time but I emphasise I do not expect all my questions to be answered…. I know there are too many of them!
🙂
Look up vulture funds.
Start here. https://en.wikipedia.org/wiki/Vulture_fund
Hi Anja — you’re asking all the right questions, and your instincts about the unfairness of the system are spot‑on. A few quick clarifications that might help:
• Yes, banks can write off bad debt — but the borrower still owes it.
A write‑off is just an accounting move, not forgiveness.
• Yes, banks get tax relief on those losses — but they still lose money.
The tax deduction softens the blow; it doesn’t erase it.
• The “5% reserve” isn’t a loophole.
It’s just an estimate of expected losses, not a hard rule or a free pass.
• And no — banks aren’t rewarded for reckless lending.
Bad loans hit their profits, capital ratios, share price, and trigger regulatory trouble. The system protects banks more than borrowers, but it doesn’t make bad lending profitable.
You’re definitely not “horribly wrong” — you’re spotting the right pressure points. The system is tilted, but not quite in the way it first appears. Happy to keep unpacking it with you.
Let’s not fall into the trap of pensioner identity politics, losers/gainers, the divide & rule ploy, identity tribal politics.
I got my (full new basic) state pension in 2018 at 65 plus an occupational one of about the same value.
I spent 15 years in a small professional practice on lorry driver equivalent wages saving into whatever personal pension was legal at the time. No employer contribution. Got shafted successively by Hambro/Allied Dunbar & notorious Equitable Life, then by government who “couldnt afford the full compensation”.
In/out of SERPS like a jack-in-the-box as gov policy changed. Then into church DB scheme then shifted to DC then sold to an insurance company.
Circumstances matter more than age.
Women suffered under decades of DWP/Govt misogynist discrimination regarding pensions. Again, affordability is used as an excuse for not sorting it out and is now hurting local authorities like Birmingham (not the fault of the women!).
My wife did employed teaching work, childminding, self-employed and employed supply teaching, and suffered ill health – had her pension age pushed back a year by gov changes,- but between us we are now on median income with more disposable income than we ever had in work. That is neither here nor there – what matters is that we, the country, can afford to have a fair system for everyone. We currently have a LOW State pension cf other Eur countries. We disadvantage women. We leave the occupational/private pension in the hands of wealth extractors who invest in property and 2nd hand stocks and shares, doing no good to anyone except the fund managers. We allow vulnerable people a freedom to destroy their own retirement savings that they do not have the skill to handle. We lie to our citizens, we privilege the wealthy and exploit the most vulnerable and we don’t have to do it that way. But we deliberately DO.
The in/out/shake it all about story of SERPS is typical. The pension scams relating to the ridiculous pension drawdown freedoms are typical. Obscure private (exploitative) pensions jargon is typical. We chose this and we chose badly.
The system is a disgrace, not individual gainers or losers.
Pensions CAN be fair for everyone, male, female, old, young, employed, self-employed, working, fit, disabled, sick – the only thing lacking is political will and courage.
Much to agree with