plans on life-support
British claim that they are in a better position than continental European
countries since many of their pensions are funded through company and
private schemes involving money invested in bonds and equities. Old-age
pensions operated by the state on a "pay as you go" basis
(deductions from the earnings of those working pay for the pensions of the
aged) are hardly adequate for survival.
the British birthrate by itself is insufficient to maintain the present
population, it is not as low as in
company pensions, though, show a considerable deficit owing to declines in
share prices and inadequate funding. As a result, increasing numbers of
companies are closing their defined-benefit schemes to new employees and,
in some cases, to longtime workers. Under these schemes, which pay a fixed
percentage of an employee's final salary according to the number of years
worked, companies have incurred the risk that the funds invested will not
be able to meet liabilities. So, the plans are generally being replaced by
defined-contribution schemes, which are less costly to the company as the
employee bears the investment risk.
moves are not popular with employees, particularly as employers usually
take the opportunity in new schemes to reduce the amount they contribute.
But when profits are threatened amid times of stock price volatility, such
changes are probably inevitable.
British government, which is concerned that inadequate savings rates --
especially among lower-wage earners -- won't cover future pension needs,
has established so-called stakeholder pensions that qualify for tax
rebates and can be taken out by housewives. Still, they have been more
popular with those who are better off financially than with poorer people
-- for whom they were intended.
government, understandably concerned about the relative poverty of many
retired people and recognizing that the state pension is inadequate, has
introduced special tax credits for poorer pensioners designed to ensure
that they can maintain a minimum standard of living. But such credits are
means-tested and thus involve eligible pensioners in bureaucratic
procedures that they may not be able to understand.
pensioners are reluctant to apply for such benefits because of the stigma
attached to means-testing. There is general agreement that saving for old
age must be encouraged, but means-testing is liable to make people
question the point of saving. Workers see themselves caught in a vise:
They realize that upon retirement their individual savings will not be
enough for them to maintain a satisfactory standard of living, yet the
very existence of these savings could mean that they cannot claim
pension issue is increasingly a political one in
problem of paying pensions in
seems probable that pensions will be a hot issue ahead of the Japanese
general election on Nov. 9. The opposition parties are reported to be
ready to contemplate raising the consumption tax and cutting expenditures
on public works to pay for an increase in the basic state pension from
one-third to one-half of earnings.
government is understandably reluctant to mention an increase in the
consumption tax at a time when economic growth remains fragile. Prime
Minister Junichiro Koizumi is reported to have said, "We will not
resolve the pension system problem unless we consider all the issues in a
comprehensive way, including where to set premiums and what level of
benefits is appropriate."
course he is right, but in view of the large number of vested interests
involved, it will be very difficult to achieve a consensus. And decisions
should not be put off until a crisis forces probably unpalatable
In general, pensions for which funds have been saved and invested are preferable to pensions funded on a "pay as you go" basis, as the burden on a declining work force is likely to be lower. But the viability of both methods ultimately depends on the productive capacity of the national economy unless, of course, pension funds have been invested abroad in a faster-growing economy and the international payments system remains stable.