Pros and Cons - Debbie Newman, Ben Woolgar 2014
State pensions, ending provision of
Section D. Economics
Like the future of healthcare and unemployment benefits, this issue is made particularly topical by the rapidly escalating costs to developed countries of old-age entitlements (pensions and free medical care). As life expectancy increases, the average age of the population is growing, and in the twenty-first century, many more retired citizens will be supported by many fewer taxpayers. It has been said that a society can be judged by how it looks after its oldest members, but can a state sustain a universal pension scheme or should we be made (or left to choose) to invest in private pension schemes or investments to secure our own future?
Pros
[1] Although civilised societies should provide for their citizens in old age, it does not follow that governments must be involved. Private pension schemes could ensure that everyone planned for and funded his or her own retirement income, reducing the burden on the state and its taxpayers.
[2] Government bureaucracies seldom provide services as efficiently as their private counterparts. A better system would be to force citizens to invest in pension plans, but with considerable freedom as to how this is done. This system is successful in Chile, and personal and corporate pension schemes are still in existence every- where. The skill of investment managers to guarantee returns is likely to provide higher pensions than the government can.
[3] Private pension schemes are not subject to political interference. This is a risk with state pensions, especially since older people are more likely to vote than the young, and can therefore elect governments that will pay generous pensions while squandering resources for the future. This is especially true in the USA where cuts to Medicaid and Medicare are seen as political suicide, since a president doing so risks losing the retired vote.
[4] Privatising pensions ends the ’dependency culture’ and gives responsibility back to the individual, who should learn to live with his or her own economic choices and the consequences. Some may choose to invest in pensions, others in their children’s education in the expectation that they will repay the gift. It should be a personal choice, and lazy spendthrifts should not benefit from an equal state pension.
[5] Whether or not a state pension scheme is desirable, it is simply not affordable. With an increasingly ageing population, it is a ticking time bomb which threatens to jeopardise countries’ economic stability. As many countries are going through austerity measures, it is only fair that the elderly feel their share of the pain too.
Cons
[1] It is society’s duty to care for its elder citizens, and it is the government’s duty to ensure that those who cannot look after themselves are catered for. Many people do not earn so much that they would, or could, contribute voluntarily to a pension scheme; a state-controlled scheme is the only way to ensure they do not become penniless upon retirement.
[2] The problems of government control which exist in nationalised industries are not true of the welfare state — pensions, healthcare, education and so on — since the free market is a poor way of guaranteeing these goods.
[3] Governments can at least monitor state pension funds and guard against fraud. The exploitation of the Mirror Group pension fund by Robert Maxwell, discovered after his death in 1991, showed how vulnerable private funds can be to dishonest businesspeople. Political interference is a strong possibility anyway; in 1997, the Labour government in the UK removed tax advantages from private pension schemes. Governments also have the onus to intervene to prevent private schemes from ’going bust’; this unwritten guarantee encourages private firms to speculate recklessly (e.g. the savings and loan industry in the USA in the early 1980s, or Asian banks in the 1990s).
[4] This is a remarkably heartless attitude that would leave those who do not invest wisely, leave investment too late or cannot afford to invest in the first place without the safety net of government support. Self-sufficient individuals can (and do) invest in private pension schemes over and above the National Insurance system, giving them all the freedom they need to create a comfortable retirement.
[5] The main problem facing governments is not the meagre amount given in state pensions but the generous pension schemes of public sector workers. These are being addressed by many countries as part of their austerity measures. There has to be some delay in changes to pensions as individuals have to be given enough notice to make their own provision.
Possible motions
This House would privatise the pension system.
This House would put an end to handouts to the retired.
Related topics
Capitalism v. socialism
Welfare state
Mandatory retirement age