Choosing your time

In life, we don’t get to decide where in times rich tapestry our existence will be sewn but if I could, I’d opt to be born in the 1950s. Children of the 1950s missed the horrors of two of the most devastating wars witnessed in Britain as well as the National Service conscriptions (ended 1960) and rationing (ended 1954) that went along with wartime Britain.

Although the two wars decimated an entire generation, those that were to follow would benefit greatly from it. The great war lead to much political change including the Homes for Heroes slum clearance programme that created a boom in the construction industry. Things like inside toilets, running water, gas and electricity were now becoming the norm – no more tin baths or communal conveniences.

That generation became the first generation of teenager as we would recognise the term today. Increasing prosperity and disposable income meant an explosion in popular cultures such as music, fashion and sport. It would have been a very exciting period to live through.

If you were lucky enough to be academically minded, you may have enjoyed a free University education and may also have received a grant towards your living costs and your chances of getting a job for life after graduation will have been very good. By contrast, today’s students are not so lucky and come away from University with upwards of £27,000 debt for their course fees alone and find themselves in a highly competitive graduate jobs market with 39% of graduates not in employment 6 months after graduating ^[1].

In terms of finding a place to live, the children of the 1950s also had an easier time. If you were poor, social housing provisions meant that you could still afford a roof over your head and housing benefit would later be introduced in the 1980s to assist you if you couldn’t pay your rent. Since 1980, the provision of housing association and local authority affordable housing has dropped from roughly 7 million homes to just under 5 million homes in 2012 ^[2] despite the population growing from 56.31 million to 63.23 million ^[3] over the same period.

For those that wanted to buy a property, according to the Halifax, the average UK house prices have gone from £30,898 in 1983 to £161,308 in 2012. Those figures don’t allow for inflation but if you look at average earnings against house prices for the same period you will see two things, those that bought properties in the 1980s will have by and large made massive gains in terms of the value of their properties and that that buying property now is considerably more expensive, particularly given the large deposits required.

That’s not to say that the baby boomers have had it all their own way. Every generation has its peaks and troughs of good and bad times. There was the uncertainty and power shortages of the 1970s as the miners downed tools and the recession of the late eighties when inflation hit 15%, not to mention the redundancies of more recent times as the government has dramatically cut its cloth to deal with the global financial crisis.

 But what has this got to do with pensions?

You may be wondering what this nostalgic look back to times gone bye has to do with pensions but time waits for no man and the baby boomers of the 1950s are now starting to become the pensioners of today. The promises made in the 1940s of a cradle to grave welfare state system are coming home to roost.

The first state pension was introduced in 1908 for those aged over 70 years old and was means tested. At that time life expectancy was around 50 years of age so it was not the mainstream benefit we see today.

In 1925, a new contribution based pension was introduced for manual workers that could be claimed from the age of 65 but life expectancy was 60 at that point. The state pension we know today really started in 1946, as a result of a report by economist and reformer, William Beveridge.

The National Insurance Act introduced a compulsory National Insurance stamp for people of working age that could be used in exchange for access to a range of benefits including the National Health Service, Unemployment benefit and the state pension from the age of 65. It represented one of the biggest changes in social policy that Britain had ever seen.

The state pension is paid for by the National Insurance contributions of the country’s citizens so in order for it to work, it requires a large working population capable of providing the funds to pay out the pensions for the days pensioners, effectively a pyramid scheme dependant on continuous population growth. In those early days they could not have envisaged that by 2008, average life expectancy would be hitting 80 years of age meaning that the working populous would now need to support the pensioners for at least 15 years.

The combination of increasing life expectancy, an ageing population, economic instability and people choosing to put off having children until later in life is a toxic time bomb waiting to explode. We will come to a point where the state can no longer afford the state pension. The government knows this, which is why they’ve started to address the problem by pushing back the retirement age towards 68, but it may need to go back even further.

If you’re claiming your pension now, or will be doing so in the next couple of years, you couldn’t have timed things any better. There has never been a better time to be a pensioner in this country. Despite the fact that the state pension and other age related benefits are the single biggest costs to the Department of Work and pensions, the government has refused to make cuts in that area of spending. In fact, the conservatives have put forward a triple lock policy that will ensure the state pension will rise by the highest of 2.5%, inflation or wage increases every year until 2020.

One of the problems we have with politics in this country is that once a political party is elected they become more occupied with trying to stay in power than doing what is best for the country. Difficult decisions are put off and swept under the carpet. The generation that would be effected the most by any changes to pension reform are also the generation most likely to revolt at the polling station so we end up with short-sighted politics.

I believe that my generation could be the first generation that will have contributed substantially to the National Insurance system without actually receiving a meaningful state pension. Automatic enrolment pensions that are paid for in part by the employee and in part by the employer are starting to be rolled out and I think these pensions could be used as an excuse to start dismantling the state pension.

In the long term, a pension that is paid for by your own savings rather than passing the bill to the next generation is much more sustainable but it is going to be contentious and cause a lot of distress for a lot of people.

 The pension lottery

If you’re reading this and starting to think about your own pension provisions for the future there’s uncomfortable news there too. The current global economic crisis (no matter what they want you to believe, it isn’t over yet) was caused by investment bankers making riskier and riskier investments at the casinos we otherwise called our stock exchanges.

The structure of investment banking is such that the massive bonuses available when risk comes off make it worth taking a gamble. After all, it’s not the investors own money they’re playing with. This encourages reckless behaviour. What incentive is there to play safe and be responsible? When you hand over your hard earned cash to a pension scheme, you’re entrusting your entire financial future to the very same people that make such a spectacular hash of things that the state had to intervene just to keep the economy going.

 The long term

The problem of ageing populations is not just a British problem but a global one. The availability of contraception and improvements in healthcare means that we are having smaller families but living longer. In the short term that is going to put our resources under tremendous strain but we face major threats to our population that may remove the living longer problem. For example, it is thought that by 2020 50% of the adult population will be obese and obesity is one of the biggest causes of premature death. We’re also facing a race against time to find new antibiotics as we come across more resistant strains of bacteria and if we fail to find solutions, we maybe unable to defend ourselves against severe infections.