On Pensions

Henry and Lawrence Gruijters comment on the problematic nature of pension reforms. First Publsihed on The Graduate Times.

When did we sign an inter-generational contract? Unions may be demanding strikes from current employees, yet it is us and the future generations who will suffer if this government does not carry out significant pension reforms.

Almost every developed nation has a problem on the issue of pensions. Advances in knowledge have increased life expectancy and quality of life, yet people still expect to retire at the same age. If we were actually allowed to retire this early, despite such knowledge advances and life expectancy increases, we could all end up in retirement for longer than we have actually worked. Imagine that.

Current generations promise themselves pensions, which are paid for by future generations. One generation is therefore giving themselves benefits at the expense of those who cannot vote yet, either because they are not old enough or simply because they are not born. This system has been collapsing due to the debt burdens it places on future generations. The “official debt” for the UK is roughly £650 billion. Pension liabilities to public sector pensions are approximately £1.2 trillion, with other pension liabilities in the order of £2.3 trillion. All in all, the total debt passed on to our generation will be more than £4,000 billion. This is 270 per cent of national income. With a changing demographic adding to longevity and increasingly expensive care, the debt burden due to pensions could become too much to carry.

This problem has been looming for at least 20 years and even without the financial crisis, the inevitable time for change would have come. The shadow pensions minister, Rachel Reeves, believes that reforms should be delayed once again — but why? There is no time to dither: time is money.  The current government has boldly taken the correct step by tackling pensions, even though this will make it unpopular.

There are many vested interests in keeping pensions as they are. Most importantly, the number of older voters is increasing. Secondly, nobody wants to see their beloved parents working longer. Ultimately, we all hope to receive a pension. The government should be applauded for standing up for the younger generations. It is a shame that unions have not done the same, but let’s hope younger members vote with their feet. A lack of reform may be a reason for a student demonstration, not against the government per se, but against the vested interests of the unions.

Bills are still far from being passed and not all the appropriate measures have been taken. Simply raising the retirement age does a lot of good but will not make the problem go away. There should be a fundamental rethink on how pensions are provided and how retirement age is determined in the far future. Should it be a system paid out of general taxation? Is it right that those working in the private sector pay towards public sector pensions? Should it be compulsory or can we trust individuals to decide for themselves? Should there be a retirement age? Is it realistic to force a Glaswegian with a life expectancy below the retirement age to pay into a government scheme?

We are all living longer and thus spending more time in good health on this earth. This is one of the greatest achievements of modern science. Working slightly longer and saving for this extra time should not be controversial, it is a natural necessity.