Business MK Column - August

Tue 06 Sep 2011

Retirement is no longer an option.  Pensions are dead.

Not many governments would consider going into an election with these as their vote-winning slogans, but with a soaring number of older people, the British concept of retirement will have to be drastically rethought, and  none of us going to like it.

The first universal state pension began to be paid in 1948.  At that time there were fewer than two hundred people living beyond their hundredth birthday.  Today, one in five of the population will receive their birthday card from the monarch; that is, ten million of us.

The key costs in old age are food and energy.  Food prices have risen more sharply in the last twenty years than at any other time in living memory.  Government estimates British food price inflation running at over eleven per cent per year, and as competition grows for supplies from the emerging nations of China, India and Brazil, that climb will become steeper.  Few of us need reminding of increasing energy costs and analysis reported in the Financial Times last month suggests further rises will put more pressure on Britain than any other issue in the foreseeable future.

So, the reality is there will not be enough money generated in the economy to pay our children’s pensions.  There probably will not be enough to do more than keep pensioners alive at the poverty line.  Comfortable retirement will be the privilege of the few.  Most people will have to work until they drop, much as things were before state pensions were introduced.
What is interesting, and terrifying for government, is that we are collectively so shocked by such an idea.  For thousands of years elderly people have relied on family for food and shelter, and in many cultures this is still  the accepted norm, but in fewer than a hundred years we, in Britain,  have put such practices behind us and replaced them with an expectation of sufficient income in retirement to live happily, take holidays and treat the grandchildren.

Look at the furore generated among public servants whose pensions are being diminished by government policy for the second time in three years.  See how angry teachers became when it was suggested they might have to retire two or three years later than previously agreed.

The fact is we have all been seduced by the idea that retirement is a time to relax and enjoy as a reward for all our efforts of the previous years and this is a rude awakening.
What is government to do?  The function of government is to raise money from us to spend on our collective behalf, and we expect it to do so wisely and to greatest effect.  A paper produced three years ago by the Institute of Economic Affairs (A Bankruptcy Foretold: The UK’s Implicit Pension Debt) makes stark reading.  National Debt currently stands at about 60% of GDP, not counting the money spent on bailing out the banks.  Add in the cost of borrowing to meet future pension provision and the IEA says that figure is 276%.  In other words, we need to be making two and a half times more money as a nation than we currently do just to keep pace with the rising cost of pensions.

The message is clear; we do not make enough money as a nation to pay ourselves a decent living after work.  Convincing all of us that this is true will be the toughest public relations job any government has ever faced, and it will doubtless break more than one of them before we accept the inevitable.  

Back to all articles