Nothing to do with Socialism. Weight of numbers. Millions of pensioners, who all vote. No government will ever dare to increase the minimum by less than at least inflation.
Since it's enough to live on now once you take out housing costs, it will therefore remain so.
Earnings growth rising faster than inflation, and higher taxes on young people who don't think voting is important, in order to pay for higher benefits for people who think it is. Possible increase in the retirement age, and continued low unemployment as consumption per worker rises as well.
Of course, if most people now under 30 grow up believing that the state pension will be worthless then they'll generally make other arrangements. So when they do get towards pension age the state pension could well be less of a sacred cow to them...
What I like best is the way people assume that while it is unsustainable for a government to fund a rising number of retired people by taking money out of the rest of the economy, it will be sustainable for pension funds to fund a rising number of retired people by, er, umm, hmm. Where do pension funds get their money? Oh yes, they cream it off the top of company profits. What a novel idea, and in no way similar to corporation tax.
OTOH, if the companies stop making money, the economy's probably hosed anyway... Actually, I tend to favour zotz's stance; gradually raising the "retirement age" postpones any potential problem quite a lot anyway. (Yes, it means you have to keep working longer. Tough.)
I'm not suggesting that the companies will stop making money, I'm suggesting that they won't be able to make extra money fast enough to increase the rate of return on capital to a sufficient degree. Not least because they'd gradually be crushed by privately owned companies with spare investment capacity.
But the private pensions don't have to fund every retired person, just the people putting the money in. That is, it's an investment (with some funny tax rules). As far as I'm aware the current government isn't putting money away now to cope with the situation in 50 years time...
Clearly if the economy collapses we're all a bit hosed anyway, but the only way to deal with that kind of thing is to put your eggs in several different baskets.
But the private pensions don't have to fund every retired person, just the people putting the money in.
So? Either it's a similar proportion of the total population in both cases, or it's a pyramid scheme.
That is, it's an investment
So they try to tell you, yes. It is a gamble on the rate of increase in the stock market being significantly greater than the rate of increase in inflation, and the dividend on accumulated capital being high enough to take as income without depleting the capital itself, in effect.
The key advantages of the pension funds approach are that it's self-adjusting (the amount handed out depends on how well the economy has actually done and not on some arbitary increments), apolitical (ditto - it's not susceptible to the public choice problem of old people having more time to organise and vote to take money from the young), and, most importantly, internationalisable. Jacking corporate taxes up suffers from diminishing returns, as companies leave for lower-tax jurisdictions like Ireland. Conversely, pension funds can choose the most profitable part of the world to invest in, which may not be the UK. This is a useful hedge against problems in the UK economy, and allows us to benefit from labour wherever our capital may be most productively added to it.
There are also more ways than via profits+dividends that money may be returned to shareholders. Stock buybacks are the classic example, although asset buying and mergers may also raise the stock price while being offsettable against taxable net profit.
So it's advantageous because it's an amount I can't know will be enough, a system I have no control over, and liable to make me more money by putting people in my country out of work if necessary (presuming here that unemployment benefit isn't funded the same way as state pensions, er...)
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(no subject)
Date: 2004-03-23 05:16 am (UTC)(no subject)
Date: 2004-03-23 05:26 am (UTC)Since it's enough to live on now once you take out housing costs, it will therefore remain so.
(no subject)
Date: 2004-03-23 06:03 am (UTC)(no subject)
Date: 2004-03-23 07:34 am (UTC)(no subject)
Date: 2004-03-23 06:25 am (UTC)Of course, if most people now under 30 grow up believing that the state pension will be worthless then they'll generally make other arrangements. So when they do get towards pension age the state pension could well be less of a sacred cow to them...
(no subject)
Date: 2004-03-23 07:38 am (UTC)(no subject)
Date: 2004-03-23 07:41 am (UTC)Actually, I tend to favour
(no subject)
Date: 2004-03-23 07:50 am (UTC)(no subject)
Date: 2004-03-23 08:05 am (UTC)But the private pensions don't have to fund every retired person, just the people putting the money in. That is, it's an investment (with some funny tax rules). As far as I'm aware the current government isn't putting money away now to cope with the situation in 50 years time...
Clearly if the economy collapses we're all a bit hosed anyway, but the only way to deal with that kind of thing is to put your eggs in several different baskets.
(no subject)
Date: 2004-03-23 11:38 am (UTC)So? Either it's a similar proportion of the total population in both cases, or it's a pyramid scheme.
That is, it's an investment
So they try to tell you, yes. It is a gamble on the rate of increase in the stock market being significantly greater than the rate of increase in inflation, and the dividend on accumulated capital being high enough to take as income without depleting the capital itself, in effect.
(no subject)
Date: 2004-03-23 09:03 am (UTC)There are also more ways than via profits+dividends that money may be returned to shareholders. Stock buybacks are the classic example, although asset buying and mergers may also raise the stock price while being offsettable against taxable net profit.
(no subject)
Date: 2004-03-23 11:44 am (UTC)Great.