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?
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.
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.