Intergenerational solidarity is best understood within the context of shared expectations and obligations regarding the ageing of individuals and the succession of generations. This contract across generations and age groups represents the norms operating at the micro- and macro-levels of social structure in a given socio-historical context.
The debate on the cost of growing old and who pays it is getting shriller
One for the pensioners on here who don’t see why the “we paid for previous generations” argument doesn’t hold any weight. *You* paid less to fewer pensioners. I’m glad you’re living longer but please appreciate the difference in ££ and younger people’s higher state pension ages. https://t.co/xcZ0VkONx1
— Nic Millar (@NJM71) April 8, 2024
What Tom and Nic is saying is true. The cost of paying for promises being made to them when they retire will be more expensive to keep for the generations following them just as the promises made to me are more expensive for Tom and Nic’s generation to pay.
As a society, we are taking a bet on future affordability which is based on an increase in our GDP which in turn is based on our becoming more productive.
Quite rightly, the Government is focussing not on limiting the promises, but reducing the obstacles that stand in the way of our meeting them. No society should plan to be poor, we should plan for future generations to live longer in comfort – if we consider this progress (which I do).
The failure of nerve that occurred at the end of the last century when we decided we could not afford the defined benefit promises we had made each other , has had serious consequences. Experts now link the decline of the UK stock market to the withdrawal of UK pension funds from equity investment, we all know that only 4% of defined pension fund money is not invested in listed UK stocks, we are starving our economy of the oxygen of productive capital needed to meet our future promises.
How ironic!
The idea of inter-generational solidarity is based on repetitive behaviors, not on one generation pulling the drawbridge up on another. Nic and Tom deserve our sympathy because we have denied their generation workplace pensions based on the ambitious but achievable promises made not by their parents but their grand parents. Pensions have a lost generation and it is theirs,
The sooner we resume normal service and get private pensions back paying proper pensions the better. To meet the bills that Tom’s table talks of, we will need not just to save harder , but invest harder, putting our pension schemes to work to meet bills that right now look out of our reach. We need the kind of economic growth in this country which we have achieved for large periods of our post-war history. We can achieve this by being positive about the future. It is ironic that much of the problem with pensions is down to our failure to keep our nerve- on pensions!
The promise for our kids and our grandkids
There is too much talk of inheritance and legacy and not enough of generating future prosperity. We create prosperity by spending the money we have saved in the UK and generating growth. This is the solidarity I want to create with the youngsters I know
This is the opposite of “wealth preservation”, the principal pre0ccupation with the wealth management industry. Here wealth is not spent but hoarded in low-risk funds that store away money that could create the welfare that Tom points to and Nic bemoans will not be there when she needs it.
The wealth of this nation is not being assured by SJP and Hargreaves Lansdown but by the entrepreneurs who are financing the great projects that can pay Tom’s bills. I’m peripherally involved in two of them, a cable that links Iceland to England , flooding our national grid with geothermal energy from bore holes near Reykholt. A cable manufacturing plant built at the mouth of the Tyne to ensure electricity from offshore wind can pass into the grid and on to other countries so that Britain can be a net-exporter of clean energy rather than dirty oil.
The vision of people I am working with is one that will bear maximum fruity in the decades to come, decades when I hope Tom and Nic will be enjoying state pensions refreshed by money being generated today. I hope that Tom and Nic, will be thinking then , as I am thinking now, about how to finance the fresh challenges for their grand children and children yet to be born.
In the grand scheme of things, there is nothing very special about us, we are simply part of a progress that has been immutable over 275 years since the onset of the industrial revolution. Of course the prosperity we enjoy today has come at a price, not least a price to the planet which we have a responsibility to repair as best we can, That too is part of the inter generational solidarity.
We cannot allow our heads to drop in the face of these challenges, we must face them with determination and consider the task a challenge not a crisis. Most of all, we must be bold in our ambition,
I’m afraid no discussion on intergenerational fairness, pension promises and investment is complete without mentioning unfunded public sector pensions. Index linked defined benefit pensions are hugely deserved by our 5m public sector workers, not just those finishing a night shift as you read this. These promises are however based on growth in the “fund”, our economy, via the SCAPE discount rate set by reference to GDP growth. The assumed historic CPI+3.5-2.4% pa GDP growth hasn’t been achieved resulting in a massive intergenerational transfer of liability to our children and grandchildren, if they don’t emigrate.
H M Treasury reduced the discount rate to CPI+1.7% pa on 30th March 2023. It only affects the fudged or notional participating employer contributions from this week, only a few participating employers will pay more cash. Equivalent employee contribution increases or reduced benefits or later retirement unsurprisingly did not get considered. The capital value of that discount rate reduction for £1.5tn of private sector promises would be ~£400bn. An arithmetic comparison might be a Ponzi scheme. To make matters worse, legislation requires expected rather than actual GDP growth to be factored into the valuation and contribution arithmetic; that would be actuarial hypocrisy in the private sector.