Oh well, who wants to retire anyway?
The date when we are going to be put out to grass seems to be moving further away.
And this morning, a raft of reports and findings have been released on that most ominous of ticking clocks, the pensions crisis. It seems UK plc is now beginning to hurt, there is only one possibly solution, and even that depends.
The CBI is worried. John Cridland, its Deputy Director-General, fears British firms are wilting under the weight of this massive pensions millstone around their necks. “We cannot allow sound businesses to be dragged down by their pensions, particularly during a recession.”
Paul McGlone, the Director of Propositions at Aon says: “With three-quarters of UK pension fund assets held in defined benefit schemes, UK companies who have such schemes are at a severe competitive disadvantage to their European peers.”
It seems the real snag lies with the state pension. According to Aon, just like the UK, Irish and Dutch companies are big users of defined benefit schemes, but in these countries the state benefits are more generous and so companies don’t need to cough up so much.
The CBI is up in arms over the government’s plans to reduce tax relief on pension payments for high earners.
Of course Gordon Brown is fond of schemes that raise money in such a way that most of us don’t notice it for a few years, such as, for example, his decision in his first ever budget to scrap tax credits on dividends received by pension funds.
According to research from Help the Aged and Age Concern, 60 per cent of the 943 over 50s who were interviewed believe they may need to delay their retirement.
According to a Financial Times/Harris survey, 60 per cent of 1,226 adults would be willing to work longer in order to enjoy a bigger pension. Only 13 per cent were “strongly opposed to a government policy enforcing older retirement.”
It does seem, however, there is a deeper problem here. It is tempting to conclude that all we need to do is save more, and voila, problem solved. But save what, exactly?
Do we save cash, rely on spare equity sitting in our property or invest money in stocks and shares. Any of these approaches may make sense for individuals, but for the country as a whole, the key lies in our ability to create goods and services versus the number of people who need goods and services.
If we have lots of cash stashed away, and which is then released as more of us retire, while the UK’s potential output capacity falls with the size of the working population, then we will simply face a problem of too much cash chasing too few goods and services.
We can import the goods of course, but that will create a new set of problems.
It seems there are only a limited number of solutions. We can invest money abroad, and thereby afford to buy goods and services not made in the UK where capacity is so limited.
We can work longer, but that presupposes jobs are available.
We can increase the UK’s capacity, down the line, by encouraging immigration, but that just delays the crisis for the next generation.
The great irony though is that for years we were told a rising population was the problem, that our resources could only stretch so far. Now that the population is in decline, we are getting a new set of difficulties. The snag there lies with timing. In the long term a smaller population may well be a good thing, but the changeover will be painful.
And if we do indeed all save more, this may lead to less aggregate demand, leading to a rise in unemployment, making it all the more difficult for people to work the kind of years they want to work in order to fund their pension.
Maybe the problem haunting the UK is similar to the one that beset Japan in the late 1980s. Maybe the implosion of the demographic time bomb is the real underlying cause of Japan’s 20 years of economic malaise.
What is the ultimate solution?
Working longer and for more years is only a partial solution. The UK must also see its productivity rise. The more goods and services we are able to produce for less inputs, the easier it will be to fund the baby boomers’ retirement.
And this means better capital infrastructure and a more flexible workforce. Above all, the willingness to let inefficient companies fail, and sufficient dynamism to allow to new companies with new ideas to grow.
© Investment & Business News 2013