Today's pension... tomorrow's burden

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Today's pension... tomorrow's burden

Jim Sillars, The Scotsman

October 22, 2003

The unborn, the young, the middle-aged and the elderly all have one thing in common an interest in pension policy. The unborn cannot know it, the young don’t know it, the middle-aged are just beginning to realise it, and today’s pensioners know it only too well as they struggle with low incomes.

In Germany, the richest country in Europe, pensions have been cut. Here, angry pensioners march in the streets against Labour’s means tests. It’s going to be a major election issue, maybe the ultimate issue, as the grey vote makes its presence, and anger, felt.

But unless there’s a long, honest debate about pensions - which goes much deeper than facile advice to save more - we’ll get it wrong. And if we do, then, strange though it may seem, today’s pensioners will be seen by future generations to have lived in a golden age.

All over Britain, people who have saved for their pension, whether along with employers in company schemes or, for the self-employed, private investment in pension funds, are finding either that benefits have been savagely cut or the lot has been lost.

People will, of course, continue to save, and some employer schemes will survive in one form or another. But the only pension provider who can guarantee an income in old age is the state, which has the coercive power to tax to pay the state pension.

The state pension is not just about pensions. It represents one of the principal moral and philosophical challenges to face all of us, about how we construct and run our society, and the legacy we leave the unborn. There is no state pension fund out of which today’s pensions, and tomorrow’s pension, are paid. Today’s taxpayer pays today’s pension, and the children in primary school today will be paying the pensions of today’s young clubbers.

And those primary school children will have their pensions paid by the as yet unborn. Can that social contract, binding each working generation to pay the pensions of retired workers, for ever and ever, be sustained?

Do we grandparents, and I am one, have the moral right to demand higher pensions, and use our heavy voting power to secure them, knowing that we will burden our grandchildren with paying heavy tax to pay pensions when we are dead? And do we, the living, have the moral right to fix upon a state pension scheme which commits the unborn to a burden in an economic era about which we cannot even guess?

But if we don’t fix generous state pensions now, and lay down that future commitment, do we condemn future generations to an endless working life, or penury in old age?

These are critical questions because with each passing generation, we have fewer workers to support each longer-living pensioner.

To secure a stable future for pensioners at a level that provides dignity in old age, but which doesn’t cripple tomorrow’s young families, we need to grapple with these questions. We need to create a social contract that not only we today can honour, but that future generations will be able to honour. This article advances no easy answers. There are none.

My purpose is to illustrate that arguments about today’s pension is not a simple one. We need everyone, young and old, to think deeply on this - something politicians and people have not done for a long time.