Tag Archives: Retirement

Pension Envy and the next ‘bubble’

Compare the population pyramid of the USA whic...

The population pyramid reveals the pension challenge; each country has one.

Probably for the first time, thanks to baby boomers, we are entering a period with very large numbers of people entering various stages of retirement.

And with the expansion of the state over the past 30 years or so, large numbers of civil servants will also be retiring on pensions financed by the taxpayer.

And, to make it worse, rather than fully funding pensions, governments have failed to finance these pensions with contributions, preferring instead to treat pension deductions as a source of income in the short term, thinking that pensions would be affordable from future tax revenues.

Oh dear, and to make it even worse, civil servants enjoy considerably preferential working conditions, again courtesy of the taxpayer, so they are retiring earlier with more stable and assured pensions.

All this compared to those who chose other careers.

The meaning?

Well, fast forward a few years, and I suspect we will see civil servants with their somewhat more assured retirement income, enjoying life a bit more easily while large numbers of other people will be still at work, probably still at it when the grim reaper calls.

Will this disparity lead to pension envy — the lusting after preferential pension entitlements by those who did not take tax-subsidised jobs in the public sector? I wonder. Could it cause social unrest. I think it just might, as the income governments need to fund these pensions for essentially idle retirees, will come, wait for it, from those still working. So even as people try to make ends meet in retirement, they’ll still be paying taxes to finance the lifestyles of retired civil servants.

Of course, this is not to deny the importance or meaningfulness of much public sector work. My point is to highlight the behaviour of governments as employers, who essentially have been irresponsible by not establishing funded pension schemes, in order to lift the pension burden from future generations of taxpayers. What is galling, I suspect, for many folk, is the duplicity of government is revealed, as they have legislated on the one hand for good private sector pension regimes, while neglecting to deal with their own house.

If the government were a company, would anyone bail them out?

Perhaps the next economic ‘bubble’ is governments as they come to grips with their own poor future financial planning despite knowing all this was coming. Now that their backs are against the wall, they are prepared to read the writing on it, but with powerful vested interest groups, will the taxpayer be fleeced yet again?

The problem with governments, though, is that they are monopoly suppliers of this chaos, and the individual taxpayer cannot escape this irresponsible behaviour.

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