Broken Pension Promises
‘The idea that diligent citizens have been putting away money for their retirement with National Insurance contributions is a myth’
Writing in the Daily Mail in October, the editor of Standpoint Daniel Johnson accurately identified Labour and Conservative plans to raise the state pension age as a “violation of contract”: Britons have paid National Insurance for decades on the understanding that they will net some meagre subsistence in return at the age of 65. Thus Johnson raises the larger issue of what such “contracts” with government are worth. The simple answer is “nothing”.
After all, what entity controls the very laws that make contracts real and binding? The state. To what entity do you turn when a contract is broken? The state. So total and terrifying is this power that perhaps we should think it’s a glass half-full. It’s truly miraculous that it’s possible to sue one’s own government: the police for physical abuse; the justice system for false imprisonment; or the NHS for incompetent medical care. But nothing stops Parliament from passing a law tomorrow that says, “You can’t sue the government.” And then you can’t.
Johnson railed against politicians’ assumption that “the entire national wealth is theirs to tax, spend and redistribute as they see fit”. I’m sympathetic with the impotent fuming, but when the state can confiscate up to 100 per cent of your earnings — a capacity it will gladly exploit to the hilt with higher earners whenever the fiscal going gets tough, as we saw in the UK last spring — the entire national wealth is theirs. Especially since the rise of so-called “progressive” tax regimes, the big Cold War hoo-ha of pitting one economic philosophy against another turns out to have been rubbish. When the state has the power to take most or even all of your money, controlling when and how much it deigns to give back, that is communism. The “end of history” — Fukuyama’s idea that capitalism has now won against its Cold War rival — misidentified the victor.
Thus this idea that our diligent citizens have been putting away money for their retirement with National Insurance contributions is a myth. In truth, these funds have simply been poured into the maw of state coffers, out of which current pensions are paid. Johnson’s comparison to a Madoff-style Ponzi scheme was spot-on.
In the US, Franklin Roosevelt brought in Social Security under a similar illusion that the state would kindly reserve your funds in its safe little bank account for your retirement. Social Security is still replete with the theatre of this conceit. I’m American, so every year I’m sent an accounting of how much I’ve paid in. Since — for now — the system still promises to maintain some relationship
between earnings and pensions, I’m to expect more dosh at 65 the more I contribute.
However, Social Security is going broke. Like National Insurance, it’s a Ponzi scheme. Despite the reassuring statement of X monies in “my account” (although its earning absolutely no interest is a red flag: this is a lie), I have no real account and those funds are being paid out to current pensioners.
Hilariously, one of the only things keeping the system afloat now is the large number of illegal immigrants making obligatory contributions with social security numbers that they have either made up or stolen.
I fully expect that before I’m 65 this “contract” will be broken, and to rescue the system from collapse from an ageing population Social Security will be means-tested, becoming another entitlement only for the poor. “My” retirement money will vanish. You cannot enforce a contract with a state that can capriciously change its terms whenever it likes. Useful rule of thumb: whenever the government gets its mitts on your money, regardless of the pretext, kiss that money goodbye.
There is another side to this debate: we’re living too long. Retirement at 65 — much less at 60, when most UK public-sector workers plan to put their feet up — is not economically tenable as life expectancy soars. Under today’s regime, council workers who eat their Weetabix could work for 30 years and retire for 30 years. Writ large, that is unfeasible. Retirement arrangements were made under the assumption that before collecting a sou, most of us would drop dead. My primary objection to both Labour and Tory proposals is that I wouldn’t increase the retirement age in 2016 or 2026, but tomorrow. I would equalise the retirement ages of men and women tomorrow. And I would equalise the retirement ages of public and private workers yesterday.
Personally, I’m one of those perverts who loves to work, and I plan to retire only once the rest of the world is so sick of columns like this that you lot will actually pay me to shut up. It’s a bit like agricultural subsidies, whereby farmers are paid not to plant their crops. I figure in the not too distant future that arrangement could turn into a nice little earner.