Defusing the pensions time bomb

Yes, because of the philosophical reservations some of us have about state interference and its potential impact on individual freedom. No, because most of us would also agree about the dangers for both individual and the nation of making it easy to take on too much debt.

As with all such dilemmas, it comes down to striking a balance, in this case between freedom and paternalism. And while (as FCA chief executive Martin Wheatley has admitted) it may take time, we can be confident we will get a workable outcome.

Notwithstanding, the difference between where we find ourselves on mortgages compared to pensions is marked. The state is now going to grill us on whether we can afford a mortgage. Yet, by comparison, our leaders seem much less bothered about whether we can afford our old age.

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Given we can all choose whether we have a mortgage, but not whether we have an old age, it is a head scratcher.

One of the explanations might be timescale, the more urgent being given priority over the more important. Pensions (to include the wider problems of an ageing population and healthcare) tend to be spoken of as a matter for the future, thus giving a lengthy road down which to kick the can. While pensions is indeed a long-term issue, this does not mean we can be relaxed about building a solution. Quite the reverse, ‘long term’ actually means it is going to take a generation or so to construct a solution.

Right now, we are off the pace. We should have done more, earlier and we almost certainly have to make up a lot of ground if we are to avoid some far-reaching social, political and economic consequences. German chancellor Angela Merkel recently gave some statistics on the proportion of GDP spent on welfare in the EU compared to the rest of the world. The EU accounts for about half of the world’s total spend on welfare - ouch!. Knowing that, you would have thought the European Commission would have, at the very least, started a debate about the implications.

By contrast, the Japanese are engaged on the issue. Among other initiatives, I hear they are trying out ‘time banking’, where citizens do voluntary work for the elderly in return for units of time, which they then bank. Those citizens can then spend the units on similar services from successor volunteers in the future, when they can no longer do everything for themselves. Whatever you think of that initiative, at least they are addressing the issue.

In the UK, recent figures suggest the NHS costs alone will go from the current £95bn a year to more than £130bn by 2020, with much of the increase being care for the elderly.

The challenge is massive. And we need to get going on a strategy to meet it. We need a complete re-engineering of our approach to pensions and retirement. If, right now, we can not get a consensus on radical solutions like compulsion, we should begin with initiatives where there is enough agreement.