Saturday, 18 June 2011

Pain for pensioners

BBC Breakfast this morning focused on two pensions stories: the change in retirement age for women, and the move away from final salary schemes for teachers.

I can see why people would be upset to see the goalposts move, especially if they were planning to retire in the near future. Ideally the changes would only affect those who are entering the workforce. For some people, the prospect of a good pension may have attracted them to the public sector despite a lower initial salary.

However, there is no escaping economic reality, and everyone working in the private sector understands this. If a private company makes unsustainable commitments, it will go bust. Nobody outside of state employment expects a job for life, never mind a final salary pension at the end of it. If something looks too good to be true, it probably is. Life is uncertain, circumstances change, and people have to adapt. Everyone is living longer, and someone has to pay for it. Justice demands that people pay their own way, rather than living high at the expense of others.

There are things the government could do to help.

For the longer term:
  • don't raid people's pensions (as Gordon Brown did in 2006)
  • avoid unfunded public pensions (don't rely on current workers to pay retired ones)
  • tax people less throughout their lives (so they have more to save)
  • don't tax interest on savings (especially when it fails to keep pace with inflation)
  • avoid debasing the currency (so that a pound saved in 2011 will still buy a pound's worth of goods in 2061)
  • abolish inheritance tax (so that parents can pass more wealth on to their children)
  • relax planning restrictions (so that more houses can be built, prices can fall, and people don't spend most of their lives paying interest on their mortgages)
  • reduce disincentives to work and employment (by restructuring benefits and taxes, and abolishing the minimum wage)
  • simplify taxes and reduce red tape (so that small companies can challenge oligopolies, resulting in lower prices for consumers and less money funnelled off by lawyers, accountants, and stock traders)
  • give up trying to manage the economy through interest rate manipulation and stimulus packages (these interventions — far from abolishing boom & bust — actually exaggerate rather than dampen the economic cycle)
For the short term:
  • simplify the benefits system and slash bureaucracy, so that the same state spending goes further
  • leave the EU and abolish import duties, so that pensioners don't pay more for food than they have to
  • abandon the ridiculous carbon targets that are pushing up energy bills
  • give local electors control over how much council tax they pay, through yearly referenda
The welfare state is collapsing under its own weight. Our society is on track for a fundamental realignment. It's not all doom and gloom. There will be pain, but if we shake the government parasite and trade freely with each other, exchanging value for value, inventing and discovering along the way, future generations will continue to live longer, happier, more prosperous lives.

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