Report after report lands on my desk calling for major reform of the pension landscape. Great play is made of the longevity figures, which show that the current system is unsustainable and that disruptive thinking is needed to solve this crisis.
One thing they have in common is that people need to take control of their own pension provision as neither government nor employers are able or willing, to maintain that liability into the future. As a result, everything is focused on finding ways of bringing individuals to the point where they realise this and take action to sustain their own lifestyle in retirement without relying on anybody else.
The second thing that all the reports have in common is they immediately diffuse this message by invoking the almost axiomatic view that the solution must be a tripartite solution between individual, government and employer. Starting from this base, the results are all variations on the same theme and it is no surprise that they all end up just tinkering around the edges; recommending increases in state pension age, simplified low-cost products and various levels of nudges / compulsion.
Nobody seems to stop to challenge this basic assumption by asking why governments and employers are involved in this area at all. Despite the fact that any government contribution has to come from employees in the form of tax and any employer contribution must come from employees in the form of reduced wages, experts insist on this complication of the pension issue.
Governments’ role in the provision of pensions is surely a straightforward one. They have no money of their own, so they should provide, from general taxation, a floor level of provision that no one can go below, as no society wants to have the elderly looking for food on rubbish dumps. While the rich don’t need this, universal provision of this floor is necessary to avoid complicating the system via means-testing and dis-incentivising people from taking personal responsibility for their own future.
Employers don’t even have this role. Given that there are laws in most western nations to avoid the exploitation of labour, it is hard to see why employers should have any involvement in pension provision at all.
Up to about 50 years ago, most people worked for a single employer all their life, so it is easy to see how a paternalistic approach crept in. The world has changed significantly and most people now have many employers across their working life. Employers are now no more responsible for a workers lifestyle after retirement than they were for the cost of raising and educating the children that will eventually form their workforce.
If we remove the employer, and restrict government to the role of safety net, then it suddenly becomes clear to people that the standard of living that they have in retirement is entirely down to the provisions that they have made for it. Passing over responsibility for retirement provision to the individual is the stated goal of all governments facing the current pension crisis and this would achieve it.
So why are all reform programmes reluctant to even challenge the basic tripartite solution. Could it be that the think-tanks and experts involved are mostly QUANGOs or government departments? After all, if you remove the employer from the pension equation, what happens to all those public service pensions – the ones that are currently dragging most countries balance of payments into the abyss?
It may well be that those currently doing most of the thinking about pensions have too much to lose to really challenge the status quo.
Do you think vested interests are preventing true pension reform? Should the responsibility lie with the individual? Let us know in the comments below!
— Ampersand Advisory (@AmpersandAG) April 26, 2012
— Jamie Macgregor (@JamieMacgregorC) April 26, 2012
— Andy Leggett (@sipphound) May 10, 2012