Pensioners, Elections, and Democracy
• James Skinner

Read any Sunday paper supplement on finance or business and inevitably you’ll find one or more articles on how to invest in a pension fund. Visit a local high street bank and the counter will be littered with brochures offering several types of pension schemes. Come election time in any western democracy and every political party will stand firm on a soapbox to defend the rights of pensioners. However, the issue of financial subsistence of modern society as it reaches the golden age of retirement is far more complex than meets the eye.

For a retired person, financial security, health, and lifestyle all go hand in hand. They are inevitably linked and are heterogeneous throughout retirement. Yet the future course for the well being of most pensioners is set at a very early stage. In other words, it is generally built up over the years. It is a long-term process.

Starting with money matters, pensions are divided into two kinds, state pensions and private ones. Both are based on regular funding. What differentiates one from the other is that state pension contributions go directly towards paying for existing pensions. The contributor has no say in the matter. Available capital for pensions depends entirely on the ratio between the working and retired members of the population at any particular moment in time. At the moment, due to dwindling birth rates and an increase in the longevity of life, this ratio is in danger of bankruptcy. State pension budgets throughout the western world are a time bomb ready to explode into the red.

Private pension schemes are also suffering but from a different type of economic gloom. The majority were dependant on stock market returns. Over the years, moneys have poured into all kinds of schemes that at the end of the day (maturity) were meant to pay out a healthy annuity in the form of a pension. Unfortunately, stocks, shares and other ingredients have not lived up to investors’ expectations and thousands of would be pensioners are now suffering heavy losses on their returns.

Many individuals with extra income have also invested in private property, savings or other ventures to enhance their future wealth. The crux is that most was and is affected by a variety of changes that have inevitably taken place over a period of time. Tax manipulation, political and legal modifications, and movement of inflation and interest rates, cost of living, all contributed to the uncertainty of the final outcome of a monthly pension on retirement.

The tragedy is that none of the above was or is predictable. Having planned retirement for forty years, at the end of the day, one has no idea what to expect from that first pension cheque!

Time is another crucial factor in end-of-the-line wealth. The earlier an individual ‘saves’ for retirement, the wealthier he will find himself when he decides to pack it all in. This is known as building up individual capital.

Enter early retirement and other theme variations. It someone suddenly finds himself at say the age of fifty that a firm or employer no longer needs him, he is quite happy to accept a lump sump plus a monthly pension based on whatever he has earned during the working part of his life. But what happens if he lives to the age of eighty-two? At fifty, one is still young enough to go on holiday twice a year, have a few pints at the local on the weekends or play golf all day long. Some may re-marry and start a new family. This all costs money. The bank balance will soon go into the red. Retiring early without the future possibility of work, and thus further income is a costly mistake. Early retirement is to be avoided like the plague.

When it comes to health, if a human being has generally lived a salubrious life, chances are he will live to reach old age without any major medical complications. If this is not the case and a person has lead a 'full' life, it is probable that he will turn into a health liability in later life.

Assuming health is not an issue, we must also consider the family situation. The retirement spectrum could swing from being a divorced and remarried sixty-something with two teenage children to a fifty-nine year old widower, both with the same relative retirement income. The basic survival outgoings of these examples are quite different. It won’t take long for the former to run out of money and the latter to leave a healthy fortune in a will to the next of kin.

What about those that retire abroad, especially to countries in the European Union? Does joining the euro mean anything to them? Of course it does. If they are entitled to a state pension, at sixty-five they can transfer to the scheme of the countryof residence. The rest of their income is subject to the value of the pound versus the euro. Is this a good thing? It is at the moment. Most of those retired in Marbella for example are bulging with pesetas because of the high value of the pound. And of course they want to keep sterling! But again, it is only a matter of time, should the pound drop to is real value, and cost of living rise in Spain, that these same pensioners will find a big drop in their monthly income cheque.

What about the political manifesto for the forthcoming elections? All political parties should agree on the following:

A: Pensions should be completely divorced from political agendas. Incentives towards well-planed retirement income, still in their infancy, should be a priority for every citizen in the country, built up gradually over a period of time. They should be protected by law and not tampered with regardless of change of government. National Insurance pensions, on the other hand, should become an ongoing national debate regardless of party colour. No government should be allowed to use it as a political election tool. The economic reality of state funded pensions has to be brought out in the open with a priority given to the hardship sector of the population.

B: Early retirement must not be encouraged. If necessary, older workers are to be allowed to work part time, or take on consultancy work rather than face outright redundancy. Several methods could be worked out between employers, governments and unions. The vital point is to continue working as long as possible.

C: Regarding health, there will come a time when people will have to be seriously penalised for not looking after themselves (smoking and even drug taking are classic examples) during their life if they expect to be taken care of at old age. (Many old age pensioners today who are suffering in old homes would not be there had they led healthier lifestyles.)

D: Campaigns should be introduced, focused on today’s youth, to emphasize conservation of health and saving money for the future. The younger generation need to be constantly reminded that they will one day become grandparents and that the healthier and wealthier they are, the better.

E: Euthanasia is going to come; there is no doubt about it. The present state of old age health care is escalating beyond any government’s budget. The more fragile or senile a person becomes, the more expensive it is for the state to look after that person. It may seem a cruel assumption but it is nevertheless a very real one. Naturally, strict laws will be needed to outlaw abuse.

Epilogue: If the truth about all future pension problems are not focused on as top priority and discussed in earnest, the welfare of the developed world as we know it, could be in jeopardy. Democracy would certainly be at risk!

© James Skinner. 2001

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