The concept of infinity has puzzled philosophers for millennia and I’m not taking it on in a blog. It’s temporal counterpart “eternity” has at least the boundary of time, though it’s still pretty mind-blowing to think of anything being eternal.
We can cope with this kind of talk when it comes to spiritual love , especially if we have faith in a timeless entity, but when it comes to earthly matters – such s pension schemes, we are wary of labels such as infinite and eternal. Life just isn’t like that.
Life just isn’t like that…
My guess is that though we know that some pension schemes will exist after we have died, it is hard to think that they can help retire people who have yet to be born, and those unborn children’s children. And yet there is no reason to suppose that those with retirement ages dating into the twenty second century will have fundamentally different needs to ours. They will have been children, will have worked and finally reached a point where they will want to wind down from work and enjoy the benefit of being paid for doing nothing. I see no reason why this should not be. Life is just like that- it has been since the Greeks started philosophizing about infinity and eternity.
I also think we have a tendency to think of our world as finite because of the existential threats we imagine for it. When I was a child it was the nuclear bomb, then the world running out of fuel, now it’s fuel running us out of our world. We cannot imagine humans on the planet in a happy state in 2,400. I wonder if Shakespeare thought the same 400 years ago?
Are pensions timeless?
Clearly not. A pension is a string of payments that are paid till someone dies
Are pension schemes timeless?
Perhaps, maybe there will still be a state pension scheme paying to our ancestors 400 years from now though we can expect it to have mutated many times to meet the changing needs of people as life expectancy and working capacity changes. Current thinking is that we are on a linear progression which will see people living to 200 sometime in my 400 year horizon, but there is no certainty of that.
The certainty is around the obsolescence of the human frame and its organs. We haven’t found a way of living without them! But our capacity to live on in the memories of others certain was a matter for Shakespeare.
Not marble nor the gilded monuments
Of princes shall outlive this powerful rhyme,
But you shall shine more bright in these contents
Than unswept stone besmeared with sluttish time.
We live on in what we bequeath later generations, we crave that kind of intergenerational transfer. So why are we so wary of bequeathing our children and their children our pension schemes?
The fear of the infinite
I posted on twitter whether we could consider an open pension scheme “infinite” and got some interesting responses
No private sector scheme can assume it will always have a flow of new entrants and retirees. Businesses don’t work that way, as UK industrial history shows.
— Norma Cohen (@NormaCohen3) November 8, 2020
Norma explicitly linked my comment to schemes sponsored by private companies. Mike Harrison considered the matter from the perspective of public pensions
A state pension can be taken as infinite as you can always rely on future taxpayers.
I don’t think there is another circumstance where it would be prudent to assume an infinite time horizon for funding DB.
CDC also need a strategy in case the pool of new members dries up.
— Mike Harrison (@HigherEdActuary) November 8, 2020
Considering that question of the “pool of new members drying up”, and Dan Skiman commented that a collective pension scheme does not have to be sponsored by an employer
Does a collective pension need to be linked to an employer? You could just market them to individuals.
— Dan Skiman (@funderboltz) November 8, 2020
For John Ralfe and I suspect many others, the idea of a pension scheme set up simply to meet the needs of those retiring is nonsense.
A stupid comment repeated, Henry, isn’t any less stupid – their employers will stop guaranteeing their pensions. Exactly what has happened in the UK, US and elsewhere
— John Ralfe (@JohnRalfe1) November 8, 2020
But I am not sure that John and Norma are right in thinking of collective pensions as necessarily linked to employers. There are many examples of self-perpetuating mutuals depending on the arrival of new savers or borrowers and indeed this is the basis of the provident movement.
There is co-existent with the desire to create something for future generations (the legacy instinct) a natural clubiness between people that creates mutual financial arrangements and very often these arrangements happen because the people clubbing together are excluded from the arrangements made by others for others. We should not forget that most company pensions excluded a large proportion of the workforce, it was only the most philanthropic that were open to all.
Can you run a pension scheme with no end in sight?
I think the answer is in the blog and especially in Mike Harrison’s comment that you can so long as you know there is an endless scheme of new entrants. Can an employer do so, I would agree with Norma that no employer can guarantee its long-term existence far enough to have made the pension promises that guaranteed defined benefit schemes made. Perhaps we were asking too much when demanding that those promises moved from “we’ll do our best” (best endeavors) to “guarantee”.
But it looks like the best endeavor variety of collective pension may make a comeback and since all pension schemes (including the state pension) have to change the promise over time, maybe we will look back at employer guaranteed pensions as the anomaly.
My view is that we can and should be setting up pensions with the capacity to run for ever but that we should be ready to bequeath those schemes to the beneficiaries if we are no longer able to manage and sponsor them. So Royal Mail should be able to pass on its CDC scheme to whatever it becomes and that might include passing the assets to a member mutual. Commercial master trusts are often member mutuals (Nest, Bluesky and People’s Pension for example) and could already exist without the sponsorship of participating employers.
It is perhaps time to start thinking of DC pension schemes for what they are looking to do in future (pay pensions) rather than for what they are right now, savings plans. So long as people want pensions, then arranging pension collectively is a legitimate activity. So long as there is no dependency on a sponsor, why shouldn’t open pension schemes consider themselves to be infinite in their capacity and eternal in their time horizon?