Could Britain learn valuable lessons from Sweden?by Robert Ellison / September 17, 2014 / Leave a comment
The destruction of the UK’s private pension system over the last 20 years will strike historians and policymakers in years to come as deeply puzzling. Like most developed countries, we have an ageing population, though not quite on a level with Japan. Like some other countries we have a below-replacement birthrate, at around 1.7 per woman of child-bearing age, although not as low as Russia. But unlike most other countries, until relatively recently we had a decently-funded and adequate workplace pension system. Sadly, the UK private or occupational pension system is now in a state of distress.
Other countries have also been examining their provision for older people. Almost all countries are extending their working ages, and therefore the pension ages, edging up to 70 in most cases (apart of course from France). And almost all countries are trying to encourage individuals to take out risk insurance against living too long in the form of annuities (apart, of course, from the UK).
In July 2014 the Australian government published a discussion paper suggesting that pension fund money should be compulsorily used to buy an annuity; this is after decades of allowing the grey community to use their retirement money to have the equivalent of a gap year, spending it on travel. The cultural change this implies will be profound and the chances of the change are high. Similar moves are being explored in the United States, but being fought desperately by asset managers, who would lose funds under management to the insurance companies.
Other developing countries, including most of Anglophone Africa, and China in particular, are intent on encouraging pension provision, using a combination of defined contribution arrangements and the defined benefit (final salary) system that is now being dismantled in the UK. Few African countries are ageing yet, and pension systems could work well, once the financial infrastructure builds up (at the moment there’s not much to invest in). The move to urbanisation means that the old forms of elder support (working in the fields in exchange for food and shelter) no longer work, and pensions are crucial. And while Arab countries are starting to age gently, sharia law does not make pension provision easy; prohibitions against interest and annuities—taking a gamble on human lives—mean that scholars are still working on what kind of pension…