With the promised departure of The Liar, his widely-expected successor Gordon Brown is naturally coming under sustained attack from his political opponents. The latest row concerns the 1997 budget, when he removed a substantial tax concession from pension funds. In the years that followed, we had a crisis in the pensions industry with a high-profile casualty and some realignment of pensions in general.
Now it’s taken for granted that this is a Bad Thing, and that blame is due. But that’s not really the whole story. You could very legitimately describe the crisis as a necessary damage limitation exercise. Because if it hadn’t happened, the pensions bubble could have continued to grow for another ten or twenty years, leading to an eventual catastrophic collapse an order of magnitude bigger than what we actually had.
It’s fundamentally a numbers game dictated by demographics. As the number of pensioners grows, so does the cost of providing for them, even if pensions per person actually shrink. A savings pot accumulated over one’s working life works fine when it’s only a few who have it, but when you try to extend that to everyone, you’re up against a more fundamental problem of supply and demand. No matter how much money the pensioners have saved, you need working people to supply their needs. And only so much of the economy can be devoted to pensioners without collapse in the rest of it.
So the basic scam was the promise heavily marketed to us in the 1980s. It was doomed from the start. I declined to invest in it, because I thought it blindingly obvious that the system then in operation could not last through to my retirement. No, I didn’t predict how 1980s-style pensions would collapse; just that it would inevitably happen. My generation will not enjoy the generous pensions of our elders, because there are simply too many of us. My own expectation is that I’ll go on working for as long as my health allows it.
Gordon would deserve credit rather than blame for deflating that bubble. Except for the side-effect of the country’s bubble-money being diverted into the property market, which still offers huge tax breaks to the rich.