Thursday, 5 December 2013

Pensions, personal responsibility and the state

The issue of the state pension looms large in today’s Autumn Statement by Chancellor George Osborne. The current state pension age was set to change from 65 to 68 in 2046 but that date will now be brought forward to the mid-2030s.  The pension age could rise again to 69 in the late-2040s, he will add, meaning people now in their 20s may have to work until they are 70, a return to the starting age when pensions were originally introduced in 1909.  The debates on pensions in 1907 and 1908 raised questions that remain pertinent.  For instance, W. H. Lever commented on 10 May 1907:

All the Government ought to do was to see that the methods of taxation were fair and just to every section of the community, and that every citizen had equal opportunities by the application of the principle of payment of taxation in accordance with ability to pay, and in proportion to the wealth of the individual…There were duties devolving on the State, which were that the State should do for the individual citizen what it was out of the power of the individual citizen to do for himself.

The problem with pensions is that individuals tend not to think about how they will fund their retirement until later in life.  When you’re twenty you’re more concerned about having fun than putting money aside for your old age.  You might think that you are putting money aside through taxation for your state pension but other than that most people do not begin their own individual pension plan and save accordingly.  The escalating age at which individuals are entitled to their state pension—justified by the government because of increasing life expectancy--may well act as the catalyst for this now to occur.  It may well be the case that raising the state pension age is justifiable in those terms though there is clearly a political narrative in the Chancellor’s decision.  However, does society really want to rely on emergency services peopled by individuals or people working in manual occupations in their 60s?  Is it morally justifiable in a highly developed and wealthy society that individuals should have to trudge to and from work until they reach 70?  Although some people may be quite happy to work until that age—and there’s no reason why they should not do so if that is what they choose to do—but we have to ask whether everyone should be compelled to work until they are 70?

Take individuals who today have just left university.  They will have student debts of perhaps £35,000 to be paid off.  They are in a steady relationship and want to set up house with their partners so they need to raise a deposit for a mortgage—currently around £40,000.  They are aware that they will need to save for their retirement and take out pension insurance—industry estimates suggest that up to a quarter of income will need to be invested to ensure a liveable pension.  They also want to have a ‘life’ as a consumer to gain access to the products that appear central to many people’s lives—the latest phone, tablet etc.—and they want to have disposable income to spend on leisure activities.  Is it any surprise that, when adding up the figures, they decide that the thing they can do without is a pension plan.  This may be a short-sighted decision but human nature dictates that people seek the pleasure of consumerism than the pain of perpetual saving.  Yet, if people want to retire before they are 70, they will need a private pension that allows them to do so and do so at a level that makes their old-age financially manageable.  Therein lies the problem.  Left to their own devices, individuals will not put aside sufficient for their old age so, in Rousseau’s terms, should they be ‘forced to be free’?  Should the state take more of individuals’ incomes and invest it for them to provide sufficient for their old-age or should individuals take control of their own futures and be compelled to invest a proportion of their income for their old-age?  The answer is probably both though I would prefer to be making decisions about my own future than leaving it to the state that is hardly a reliable user of the public purse if last experience is anything to go by. 

Whatever decision individuals and governments make, the current pension regime is unsustainable and that has been the case for several decades.  What we need is a new model that allows individuals to retire when they choose even if they do not receive their state pension until later in life. 

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