The Great British Pension Sell-Off

The following is a guest post from a good friend of mine named Chris Pesterfield. He is perhaps the smartest person I know and his thirst for knowledge, and committed work ethic, makes him a constant source of inspiration. Graduating with a first class degree, he is now working in Brighton. The following are Chris’ own words.

 

I recently received an email from my employer informing me that they would be automatically enrolling me in their pension scheme. This is prompted not by their generosity, but by a new law that requires employers to set up a workplace pension scheme. Oh, and it will be money from my wages that goes into the fund. So the generosity ends with my employer telling me they will be putting some of my money into a fund I can’t access until retirement, unless I opt out.

Now, despite this happening automatically without my consent, and with my money, it still feels difficult to argue against the logic; after all, who doesn’t think prudent financial planning for your own future is a good idea? But then the following week it transpired that the government are looking at the option of privatising the delivery of the state pension. That is, the government no longer want to administer it, so are considering paying a private organisation to do it for them. Once this asset, or burden, as the government obviously sees it, is off the books it will look like they have less debt. But if the record of public-private partnerships (where they state pays a private firm to do what it could do itself) are anything to go by then we’d certainly be better off leaving the state to administer as much as it can. PPP’s were an accounting trick which reduced borrowing but increased the long-term cost in almost all cases – a damaging indictment of the private sector’s inefficiency in delivering large scale projects.

And if this isn’t the beginning of a transition away from the state providing financial security (not that they do it particularly well now) for the elderly, and towards forcing individuals to provide for themselves, then it certainly looks like it. At this point you’ll probably react in one of two ways: either you’ll be shaking your head at yet another wrong-headed and ideologically driven decision (perhaps with an additional sigh of mild despair?); or you’ll think the government is taking another sensible step towards reducing the deficit and making sure people look after themselves. Of course, people in this latter category will likely be able to afford to put money aside for the future, or at least have aspirations to. Who wouldn’t want to be able to?

The danger here, of course, is that many people simply can’t afford to save, particularly those who will be most affected by these changes; young people. Those young people are currently being squeezed financially more than any other group, with a lack of jobs, graduate of otherwise, house prices often far out of reach, and an increasing mountain of debt, means even the most prudent would struggle with the idea of allowing a percentage of their wage each month to go into a pension fund they cannot access for decades. And given that you can already start a private pension if you wish, you have to wonder why the government are so insistent that we should all be enrolled into a private pension?

One of Karl Popper’s arguments in his book The Open Society and its Enemies may make sense of this. He suggested that change should, if possible, be piecemeal, as any sort of revolutionary change is bound to fail, as large scale social engineering requires the implementation of an untested set of ideas in the real world. There are no social laboratories to test out political changes, and the outcomes can only be guessed at, with at best poor information and foresight. Not to mention that there would also be opposition to such changes. Therefore, you make one small change towards your end goal, and see how it sits. Then you make another small change, and another, and with success you end up with your paradigm shift; albeit over a much longer period of time.

Is this what the Tories are doing with pensions? Perhaps not. Perhaps they are just trying to sell off a part of the service that is currently run inefficiently to save the state some money, and encourage people to save for themselves. But if it leads to more than this, then we are looking at the first step of many that through years of piecemeal change, and selling off one small part of the state-run service at a time, could lead to full privatisation. Done in this way, we would barely notice it has happened and the state could have fully divested itself of pensions, and the attached obligation to ensure people are looked after into their later years, and those that have been unable to save for themselves will be left, both literally and metaphorically, out in the cold, with less than pensioners have now, which is not very much. This strategy of achieving change reminds me of the apocryphal story of boiling a frog alive – if the water is heated from cold slowly enough the frog won’t notice. Let’s hope we’re not all being tricked like the frog.

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