There is a gigantic structural weakness in most Western
economies. Ageing populations with an exaggerated sense of entitlement have
failed to make proper provision for retirement.
Countries where people have been brought up to rely on
generous state pensions are in the greatest danger. Although voters are led to
believe that they have invested in funds with names like “national insurance”
or “social security”, those funds are accountancy fictions, not proper trusts.
No viable investments have been made. Instead, existing retirees are paid out
of current income from contributions being paid by those now working. If a
private sector pension salesman did that, he would be jailed.
In fact, he was – Bernie Madoff.
Actuaries have been warning for a long time that an ageing
population makes this unsustainable.
Yet the latest proposals of the new British government, in
an otherwise sensible Budget, will actually make things worse. They propose
linking state pension payments to average earnings.
So if those in work increase their earnings, through their
own hard work, enterprise, self-sacrifice, and intelligent investment, they
will have to hand over a portion so that people who have contributed nothing to
that increase, and who failed to make proper provision for their own pensions,
can enjoy the same percentage increase.
These proposals are the lowest sort of politics, trying to
buy short-term popularity with someone else’s money – our children’s. It has
nothing to do with providing for a decent old age; it is providing an unearned
bonus for those who did not provide for themselves. To argue that it is right
that children should pay for their parents’ old age ignores increased mobility
of population – it is, in effect, expecting someone else’s children to pick up
It also ignores increased mobility of capital. The high
taxes required to service these pensions will be a major disincentive in those
countries that impose them. They will undermine their national economies
All this matters to the individual entrepreneur because it
underlines the importance of mobility in the global economy, and of choosing
the right base. It also reminds us that, if we want comfortable retirements, we
are obliged to make the money to provide for them ourselves, and not rely on
the Madoffs, or their state sector equivalents.