When I’m not at work one of my big loves is writing fiction, and every now and then I write a line which I find myself being particularly proud of. Indeed, a background character in a short story of mine quipped recently ‘You know, with the looming inevitable pension crisis, we’re all millennials now’.
Browsing the FT this morning it seems my character and I might be on to something – the article I’ve linked here predicts ‘Millennials’ will be working to the age of 70 before being eligible for a state pension. I can’t say I’m surprised as I’ve seen this coming for a while – one of my university essays argued that an aging population is the greatest threat to the welfare state in Europe, a theory which is being borne out in the UK and ‘On the Continent’. Countries throughout Europe have infrequently tried and more-frequently failed to raise their state pension ages as part of wider public finance shortcomings, whilst Japan’s aging population and stagnant birth-rate has resulted in ‘too few pulling a cart holding too many’, and I also don’t believe China’s reform of the one-child policy has anything to do with the Communist Party wanting to reduce authoritarianism but rather stems from recognising drastic problems with elderly care in the world’s most populous country.
This crisis is hardly ‘Breaking News’ either, as parties on all side of the spectrum have known that increasing the pension age will be politically inconvenient for decades since an aging electorate is unlikely to vote against its own interests – something Bastiat foresaw in 1850 with his notion of ‘Plunder’ – the idea that society will develop to a point that implementing a harmful policy will benefit political careers, with the result being that the public suffers. Despite rises in working hours, stress levels, and consumption of alcohol and processed food, life expectancy is growing at such a rate that ‘retirement age’ now accounts for much more of the average Briton’s life than could ever have been predicted when the UK state pension was introduced over a century ago. Indeed, our working lives are shorter than ever, as it stands, with graduates entering the workforce (and paying tax) in their early to mid twenties rather than leaving school and starting work in their mid-teens. All positive changes I’m sure you’re all agree, but positive changes which have to be reflected in public policy and Work & Pension law, all the same.
As a recruiter I’m always quick to push the benefits of strong pension policies to candidates, and I’m grateful to pay into a good scheme myself working at Lawrence Harvey. But reform isn’t coming quickly enough or drastically enough to solve the problem. I read this week of Universal Basic Income being trialed in parts of Ontario, Canada – the next step in a topic which has been a staple of my LinkedIn news feed for some time. What’s interesting is that the Left and Centre-left have been increasingly advocating this theory, which develops on a proposal put forward by free-marketer Milton Friedman several decades ago under the moniker of ‘The Negative Income Tax’.
The key difference between the two is that NIT only pays government money to those below a certain income level, whilst UBI would give government money even to those paying the top rate of tax (I’m sure I’m not the only person who thinks that’s a bit silly…).
Personally, I would like to see a policy implemented which calculates the cost of living according to age and then applies NIT to those living below this line. As such, those of working age could earn more than pensioners before being liable for tax, with the term ‘pensioner’ moving dynamically with year-on-year economic data calculating the average length of a working life relative to the cost of living (and also accounting for inflation, lengthening life expectancy, and changes to the average cost of care).
Until such a policy is implemented I’d say it’s a good idea to make the most of any pension your employer offers, and to invest your disposable income knowing your savings may have to last quite a lot longer than you might expect; that’s the view of this ‘Millennial’ – and after all, I’m just like you…
The prospect of faster increases to the state pension age was put to ministers this week as they consider ways to manage the growing costs of the UK’s ageing society. What is the problem? The government currently spends about £100bn a year on the state pension and pensioner benefits and this is set to grow as the population ages. This year, about 6,000 people are expected to celebrate their 100th birthday. By 2050, this figure is anticipated to rise to 56,000 people. Against this demographic backdrop, the government commissioned an independent review of the state pension age last year to help it consider the pace of future rises.