How much will be left for your pension? This is the question you should be asking yourself because the notion that the tap will be still on, with crisp euros gushing out when you reach retirement age, is at the very least a dubious proposition.
At the moment, unlike most of the rest of Europe, Irish demographics are still just about right, thanks in the main to the Pope’s Children baby boom that peaked in June 1980 – nine months after the Pope kissed the tarmac in Dublin in September 1979. These workers are paying for their parents now.
After 1980, the Irish birth rate dropped off substantially and only began to recover in the 2000s. But it never recovered to its 1980 peak. This is typical of most mature democracies. And we are all living longer so there are now, and will be in the future, more old people knocking about who need to be paid.
In the next few years, retirement age is slated to rise to 68 and it may well have to rise again. The mathematics are very simple: unless we have more workers paying for the older cohort, either the weekly pension falls or taxes on younger workers have to rise to pay for the existing pension.
It will come down to a choice between different generations.
Many years ago, Tony Benn, the English socialist, remarked to me that “the young and the old have one thing in common, they are both bullied by the middle-aged.” For now, as long as the middle-aged hold the reins of power, public pension provisions will be eked out for as long as possible.
But something has to give because unless we have a massive increase in immigration, it’s hard to see how the present system can be maintained.
There is another argument which is that given high levels of job insecurity among young people, should the state be handing over so much cash to the elderly, when arguably the young are the ones most in need of a helping hand?
The central assumption of the pension system is that the old need the money more than the young. But is this the case now, or will it be the case in the future?
Consider the following.
The nature of work is about to be transformed by artificial intelligence that could wreak havoc on all forms of traditional work, particularly white-collar work. For example, in many “safe” professions such as law and accountancy, much work will be done by machines.
One implication of this is that unemployment in what used to be the solid professions will increase. Ultimately, only the very creative or entrepreneurial will thrive. This means we have to think very differently about how we organise our economy. It implies that younger people will have to reassess their futures, what they are going to do and how they will make a living.
Those who are content to “outsource” entrepreneurial ventures to others and are merely happy to become workers, might find that easy option closed off. If not closed off altogether, it’s highly unlikely to be the road to prosperity.
When faced with these types of dilemmas, societies will also need to reassess how they spend their resources and this brings me back to pensions.
Why spend so much money exclusively to prop up older people’s incomes via pensions when maybe we should be spending some of this money on a start-up fund for younger people?
Implicit in the pension debate is that the economy will be able to provide the jobs, to generate the income, to generate the taxes, to pay the pensions. What if AI undermines this?
In this case, we would need far more entrepreneurs. However, one of the major impediments to “start-ups” is a lack of capital. Banks are not in the business of seed capital for small businesses. As well as having a state pension fund for the elderly, imagine if we were to share some of the resources and have a state start-up fund for young people?
This is a half-baked idea right now, and needs refinement, but think about what is going on.
We are spending huge resources at one end of the age cohort – which is right and proper – yet at the other end, when people just come into the labour market, they are falling behind. We know that this generation of Irish people could well be the first in many generations to be poorer than their parents. What is their future?
It seems to me that the future is a creative entrepreneurial one and that standing on your own two feet will require people to take more risks in order to set up businesses. But in the same way as children need stabilisers when they first learn to cycle, people (all citizens) will need some help to start their own businesses. People need collateral to start and if you don’t have collateral or capital, you won’t get started.
Here’s where the idea of a “start-up fund” as well as a “pension fund” comes in to help at both ends of the labour market. To avoid wasting money and rather than give younger people cash as income, why not pledge collateral to them backed by their small but not insignificant part of a sovereign wealth fund? They could “bank” this collateral with one of the banks, releasing seed capital. This move will give them the leg-up they need and will also begin the process of actually fostering a real self-sufficient, entrepreneurial economy that may be able to withstand the assault of artificial intelligence on the work force.
I know its counterintuitive to imagine that you can become self-sufficient while depending on a state fund for collateral, but when was the last time you saw a child just get up on a bike for the first time and cycle off?
Up early this morning Dathi? Me too!
In Irish public service, they could start with more transparency and accountability and stop abusing ‘ill-health retirement’ as a management tool.
But with the political sinecures that goes for regulation in Ireland, don’t hold your breath!
The observation about artificial intelligence is appropriate since job losses through the growth of digital systems has actually been going on for many years, Example: the third engineering process plant I built in 1990 employed sixty people. The last and much larger one built 1n 2003 employed nine — its production lines were fully automated from a central control room. Sadly all of the state start-up funds would not provide means of earning a living for those other fifty because it is a good bet that the majority of them would be incapable of taking advantage of it. Perhaps another… Read more »
Nigerians tell me that 70% of them are self employed, in common with a lot of ‘Third world countries’. We should encourage immigration and entrapeneurism because we’ve’exported’ so much of our best talent overseas, and need to maximize Ireland’s vast agri resources . You go shopping in Dublin and half the shops are empty while paying high rents, does that happen in Lagos/Tokyo/London. Encourage and support entrapeneurism.
‘How much will be left for your pension?’ DMcW Nothing, whether public or private as during the next leg down of the GFC the fearl faux-Capitalism of The Globalist will only have pension honey pots left to raid, having robbed the social & financial Capital of the entire Progressive progress of working people since the C18th, having hoovered up & ‘privatised’ the post-war Welfare State to asset strip it to make good bankster gamblers. ‘This is the question you should be asking yourself because the notion that the tap will be still on, with crisp euros gushing out when you… Read more »
Given that 7/10 new businesses fail within 10 years the main benefit of entrepreneurial activity to GDP is that investment money that would otherwise have been sitting in savings is pushed out into circulation. The chance of benefit for the actual entrepreneur is slim, while the rest of society benefits regardless of their success or failure.
Why not put €10K to €20K in a market tracking fund for each child upon their birth. Over longer periods that would grow into to a minimum of €1M (€10K @ 7% for 70yrs) and with historic averages much closer to €20MM (€20K @ 10% for 70yrs).
There is one serious problem with your solution.
You make the assumption that NEW entrepreneurial activity is in the 20-34 age group…..this is a false assumption.. and you’re not alone in believing this.
The actual truth is(as always) much more interesting.
The most active as NEW entrepreneurs are in the 55-64 age group.
“The fact that the largest age group of our population is also the most entrepreneurial bodes well for the United States’ economic future,” said Robert E. Litan, vice president of Research and Policy at the Kauffman Foundation. “This study shows how several other emerging trends, from job tenure to regulatory changes due to the current recession, should facilitate entrepreneurship in coming years.” Contrary to popularly held assumptions, it turns out that over the past decade or so, the highest rate of entrepreneurial activity belongs to the 55-64 age group. The 20-34 age bracket, meanwhile, which is usually identified with swashbuckling… Read more »
People have this dewy eyed, almost mystical, view of start-ups. I guess they’ve been watching too much TV, and believing the, quite frankly, fictional ‘histories’ of successful startups. Except in a handful of cases, start-ups are part of a business ecosystem: Big companies, medium sized companies, public sector, and all sorts of small companies. They aren’t sudden left-field inspirations, followed by some wacky, epoch changing, technology that leaves the world gasping in wonder. They’re mainly small, simple ideas, that do some small thing significantly better, or in a different way. But they are part of a larger whole. To encourage… Read more »
“The nature of work is about to be transformed by artificial intelligence that could wreak havoc on all forms of traditional work, particularly white-collar work. For example, in many “safe” professions such as law and accountancy, much work will be done by machines.” : D.McW
Where have I heard that one before …mmm oh I remember ….. “The chips are down” Horizon 1977 https://youtu.be/HW5Fvk8FNOQ?t=2848
The other issue i think is the number of older people sitting on property that is their biggest asset but they cannot release any equity from it.
There has to be a market for reverse mortgages or “en viager” as it is called in France.
this would at least allow people to access the equity in their property in their old age without worrying about losing the property while they are alive.
Technology will change, but it will also create opportunities. I’m not so sure on the AI thing just yet. And there will be certain areas where people will still be needed – We could make all airliners into pilotless drones but its going to take a big cultural shift. All this is going to be based on networks and processing power with instantaneous answers .. which in turn is all based on energy to power the control technology. Its also got to be based on a system where computing power when decommissioned has to be recycled. The energy will have… Read more »
The Wealth of Nations is passed from generation to generation. Very little of that wealth is created by any one generation. I do not see any recognition of that fundamental fact is David’s analysis. He treats the older generation as a burden on the young with “unless we have more workers paying for the older cohort, either the weekly pension falls or taxes on younger workers have to rise to pay for the existing pension.” He says “The central assumption of the pension system is that the old need the money more than the young”. That is quite wrong. The… Read more »
The amount of mind altering substances consumed between 1998 and 2008 will eliminate the number of future pensioners. Type 2 Diabetes (booze), Heart attacks in middle age (Cocaine), and tables (mental degradation) etc… will reduce the numbers enter the senior bracket. Our real problem is the Health system, and funding that. And our declining productivity. One good means of resolving the pension problem would be to reduce the debt level. That would mean reducing the nonessential elements of the Welfare state, to merely providing welfare to those that need it. Welfare for failed politicians, quango bosses, insiders, incompetent bankers, bank… Read more »
How to solve our pension crisis, is the question. What is the pension crisis? It seems there are several basic problems. Some sectors of the economy where people are employed does not provide enough income for the people to live in the fashion they expect. They spend more than they earn, and go into lifetime debt and end up broke. Society, has attempted to provide a pension by taking enforced deductions, and additional taxes from the income and investing it in pension funds that would accumulate to be paid out incrementally in retirement. In Canada this is in two sectors.… Read more »
IF MACHINES TAKE THE JOBS
WHO WILL HAVE MONEY TO SPEND
-> TO BUY THE PRODUCTS OF THESE STARTUPS?
WHAT WILL THESE STARTUPS PRODUCE?
PRODUCTS FOR THE GREAT STARVING MASSES?
WHAT WILL A RETAIL SHOP OF THE FUTURE SELL?
-> WILL MACHINES BUY THESE PRODUCTS?
-> OR WE GET FREE MONEY FROM SOMEWHERE?
=> WHAT WILL THAT DO TO THE VALUE OF MONEY?
OR NONE OF THE ABOVE
=> ANOTHER GREAT CULLING?!
Interesting article and glad that you articulated the imminent arrival of AI technology and the impact it will have on how we work and the job market. Over the next 10 years (or less even) there will be huge transformations in how we live, work and play. AI technology has already crept into our everyday life thru the use of Smartphones and operating system… the most well know of these are Google Now, Siri (Apple), Cortana (Windows) and Alexa (Amazon)… and the One to Rule them all: Watson from IBM… Google/Apple/Window/Amazon are pretty much commercial products and are fun to… Read more »
I actually don’t believe the standard story that we are presented with regard to the pensions issue. This is because money, vested interests, the state system, the FIRE economy (Finance, Insurance, Real Estate), the media and consumer spending are all involved. And based on my experience, we should not expect an honest public discussion when these players are involved. We have a money crisis, and a productivity crisis. And the money problem is exemplified by the prevailing policies based on ponzi scheming the real estate market, and driving p public debt. The productivity crisis is exemplified by the costs of… Read more »
We need a government minister responsibel for productivity. With special focus on the state sector. The greatest flaw in Keynesian economics as it is currently practiced, is it’s determination to prevent any productivity improvement in the public sector. Investment yes. But productivity improvement gets a No. The Nevin Institute, as the think tank driving increased state power in the society, is advocating investment, but not if it it improves the shadow of state power over the populace.
At the current rate of public sector borrowing, and given the absurd level of ambition expressed in the electoral based political system (Kildare Street), and the undemocratic political system (IBEC, ICTU, Banks, mncs, large hedge funds), the state will go for bankruptcu long before there is a pensions crisis. Therefore nobody should assume that the pension system will “work” – when there will be no money in it. In the US, the demographics are favourable, and there is a serious income crisis in the labour market. That model is failing. [ how many millions are on foodstamps ? ]. productivity… Read more »
TV – the productivity cancer. It misleads people into thinking that they are more advanced. And in the process it retards their development.
I thought that today, instead of my comment, I’ll choose a lazy and quicker way and translate (it is a quick translation) of an article on pension systems written 8 years ago by a Polish MEP Janusz Korwin-Mikke (with whom I agree on many, though not all issues). Janusz Korwin-Mikke “Three concepts of retirement” January 22, 2008 “Because a number of misunderstandings came to the fore in relation to this topic – this is an attempt to explain them. Pension, as is known, was introduced by the late Otton von Bismarck – in order to prevent the socialists, who were… Read more »
It’s Time to THINK outside the box.
Starting with – Why is everyone hung up on work and productivity?
In the future the work will be done by the machines.
So ask yourselves this very simple question!
If we shouldn’t be hung up on work, what should we be thinking about.
Bear in mind “who controls the machines controls you”
Never mind your pension , prepare for a cataclysm.
Further to the above, it is not pension funds we should worry about but the economy as a whole. Over the last 100 years it has expanded with the use of cheap energy. As energy production costs are rapidly rising the economy will retract to reflect the cost of energy. The value of true money has been artificially repressed during this time and is significantly undervalued. The place to be is to have and to own real money. Do not be deceived by obtaining a paper promise to give you real money. Do not buy paper funds, exchange traded funds… Read more »
At present the success of the global depends on increasing demand and price inflation of 2% annually.
Neither of the above criteria are being met nor are they likely to be ever again.
Technology is overpowering current economic thinking.
It’s the machines stupid.
At the risk of repeating myself – The single most important issue facing mankind is “Who should control the intellectual property of machines”
No matter where one resides the plan is the same. One world government.
Create the chaos. Out of chaos, order. The New world order.
“Is bitcoin the answer if traditional investments are letting you down?”
Biased one sided media is the norm. There are no objectively reasoned articles anymore. Well few and far between.
http://journal-neo.org/2016/08/22/the-collapse-of-rome-washington-s-6-5-trillion-black-hole/ There goes your pension. Down the Black Hole. “”The corruption, falsification, probable fraud and embezzlement is so huge and so endemic that it will destroy any effort at transparency, buried under the cover of bureaucratic ineptitude. It’s symptomatic of the rot of Washington and a nation that only a few decades ago held a tradition of honesty and integrity in public service. If we want to give a name to a faceless bureaucracy responsible for accurate reporting of that unaccountable $6.5 trillion, his current name is Colonel (retired) Robert M. Speer, Assistant Secretary of the Army Financial Management and… Read more »
If you have the option, buy out your pension for cash and by gold and silver!! Soon!
Those of you who are interested in foreign affairs might find interesting this excerpt from an interview the Polish Minister for Foreign Affairs Witold Waszczykowski gave this week to Deutsche Presse-Agentur: “DPA: Five years ago your predecessor Radek Sikorski demanded that Germany assumes a leadership role in Germany because he was “more afraid of German inaction than German power”. Do you agree with this statement? Minister Waszczykowski: A few years ago I used to say the same thing. We are interested in Germany playing a significant role in Europe and the European Union, because Germany’s potential is so big that… Read more »
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