The on-going saga of Downton Abbey has hit the screens again for its fourth season with over 10.5 million viewers tuning into the first episode, making it the most-watched drama of 2013. The new season is focused on the increasingly desperate attempts of the Grantham family to adjust to the aftermath of the First World War while desperately striving to hold onto the past.
Their efforts to hold back the tide of modernity puts one in mind of the desperate attempts of the pension world to patch up their old approaches to pension saving in a world that has changed dramatically since the two financial melt-downs of the first decade of the 21st century. Just as the Canute-like Earl of Grantham seeks to keep alive his ideal of the pre-war world where everyone knew their place, despite the increase in education and expectation of the working class, so the pensions industry seeks to keep the earnings-related pension idea alive in spite of the reality that the 20th century’s pension plans were built on expectations of low-longevity and expanding workforces that are now completely invalid.
While trying to hold back the tide of class equalisation makes for a multitude of entertaining plot and sub-plot lines in the drama series, the people who will be dependent upon pensions in the latter half of this century deserve a more realistic approach to resolving their problems and creating a pension system that is fit for purpose in the 21st century. The best way to go about this involves stopping the attempts to patch up what’s already there and to return to the basics and examine the purpose of a pension.
Pensions were originally designed to ensure that peoples’ basic needs were met when they were too old to work. This is the reasoning behind the original 1908 Old Age Pensions Act of David Lloyd George, which gave a basic living income amount to those who had nothing. It was a means-tested benefit and paid a flat rate to all, a rate that was kept deliberately low to ensure that it would not discourage people from saving for their old age as well. The taxpayer would assist those in need on an equal basis, irrespective of the level of their previous earnings.
The House of Lords strenuously opposed it as socialist– so much so that it led to the Liberal government changing the House of Lords by emasculating its powers in order to ensure that an unelected chamber could never again hold up reforms that a democratically elected House of Commons had decided upon.
How those peers would laugh at the irony that taxpayer intervention is no longer focused on treating everyone equally. Instead it is designed to maintain the privileges of the better off by contributing more to those who earn more, either via auto-enrolment contribution or by pension tax relief. Even the Dowager Countess of Grantham might be slightly fazed by the basic unfairness inherent in this approach.
Undaunted, all the parties have pushed forward with new proposals at their conferences to tinker with the rates of relief on pensions but none with the courage to view the problem from first principles. Thus they all maintain the view that pensions should be based on what people earned during their working life, even though the social value of individuals to society is not differentiated by their previous employment.
Without a fundamental rethink of the role of the taxpayer in the pension landscape, we are as doomed, like the Earl of Grantham, to struggle to hold back the tide of modern life, which will wash away the established tenets of the past. Will either the politician or the Earl ever get the courage to have that rethink?
Google Plus: TomMurray
What do you think? Let us know in the comments below!
Photo Credit: Highclere Castle by Richard Munckton