Happiness and harm

American political satirist and author P. J. O...

Image via Wikipedia

David Cameron announced last week that the government will start collecting statistics on national well-being.

By happy chance, PJ O’Rourke was being interviewed on the radio on Friday. His off the cuff comment “It’s none of his bloody business, if he came up to me in the streets and asked me if I was happy, I’d assume he was selling drugs”.

I’m all in favour of a “happiness measure” if it’s based on a sound statistical methodology but like PJ and that enlightened economist Diane Coyle, whose blog on this you can read here, I find the direct survey of measuring happiness flawed. Diane comments that though richer people tend to profess happiness and poor people moan, any suggestion that happiness is based on increasing wealth is flawed. Happiness is in finite supply and the incremental happiness of earning more than £12,000 pa is very small relative to the alleviation of poverty below that amount.

Diane’s blog touches upon my usual focus-welfare in retirement. It’s worth quoting what Diane  has to say on measuring this.

(We need) … a systematic set of generational accounts so we know what obligations past and present government decisions about pensions and welfare imply for future taxpayers. Without this, we’ll never understand the sustainability of government finances and the structure of the state.

We are moving at some pace to a better understanding of our obligations past and present through the work of Lord Hutton on public sector pensions and the work of the DWP and Treasury strategy teams who are reviewing the structure and extent of the welfare floor for those in their older years.

The key word here is “understanding”. I’ve moaned all year that we don’t understand the obligations we have and are accumulating on ourselves and our children from public sector pensions.

While we are beginning to understand that the obligations we are undertaking towards those in public service are over-generous, we are also waking up to inadequacy our Basic State Pension and the complexity of the means-tested benefits that have to lift those relying on it out of poverty.  In big picture terms, it looks as if the Coalition have determined to provide a proper entitlement for all to a Basic State Pension that provides people with enough to be moderately “happy”. There is a pleasing congruence between academic research and Government thinking which suggests that the State can do most good by ensuring that we all have a promise in old age of £7,000 pa, properly linked to average earnings.

In 1998, I worked with Ben Jupp on a paper called “Reasonable Force”. It looked at the level of compulsion that the Government should apply to a nation recalcitrant in its savings habits. Ben argued then for a “target  lifetime income” that went beyond the level of the Basic State Pension and was achieved through compulsory savings. His arguments were founded on a political premise.

Over a hundred years ago John Stuart Mill argued that ‘the only purpose for which power can be rightfully exercised over any other member of a civilised community, gainst his will, is to prevent harm to others. His own good, either physical or moral, is not sufficient warrant.”

I am partly with JSM here, simply ratcheting up the Basic State Pension harms the wealth of one section of society to provide welfare for others and if that welfare is needed because a high proportion of society refuse to do anything about retirement savings, then the Government can reasonably compel the feckless.

We have chosen not to compel people to save for themselves and instead gone for a system of impulsion , relying on the inertia of apathy to make auto-enrolment work. However, the intention of Government is clear. Extending the BSP to £140 per week is necessary to ease the absolute misery of poverty, however the goal of a “target lifetime income” sufficient to lift us all from being a burden on others lies behind Auto-Enrolment.

The contribution rates behind AE are not sufficient to restore the replacement ratio of pre and post retirement income envisaged in previous decades. The two-thirds of salary target that we have held dear for many years is now vanishing over the horizon. In truth it was no more than a chimera for large proportions of society who never benefited from the “good quality occupational  schemes” lauded by Frank Field and others as a national treasure.

It’s worth pointing out that £7,000 pa is a long way from the “target lifetime income” proposed by Ben Jupp and a long way below the level of income that research suggests we need to be reasonably happy.

Instead of universal wealth, we have  adjusted our ambitions to maximise happiness among those who suffer financial misery and minimise the harm of “moral hazard” from those who can save but won’t.

Having set out their stall, this Government is asking us to measure their success on three  retirement welfare strategies.

  1. The upgrading of the Basic State Pension into a Citizen’s Pension
  2. The rebalancing of the Treasury’s pension spend in favour of a Citizen’s Pension and to the detriment of Public Sector Pensions
  3. A continuation of the previous Government’s committment to auto-enrol us into DC pensions (NEST included)

Time will tell whether the Coalition Government has created a credible and sustainable system which allows us to measure and understand “government finances and the structure of the State”.

 

 

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in dc pensions, NEST, pensions, Retirement, Treasury and tagged , , , , , , , , , , , , , , , , . Bookmark the permalink.

1 Response to Happiness and harm

  1. Pingback: A Christmas message of hope for your pension « Henrytapper's Blog

Leave a Reply