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.
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.