-By Warner Todd Huston
Long ago the British stopped being a capitalist country and adopted instead a quasi-socialist system. But even they are beginning to realize that people cannot retire at 65 (or even younger) and live in luxury for another 20 or so years afterward all on the public dime. This month the Cameron government took another small and politically difficult step toward addressing the mounting pension crisis in England.
News of the newest fix to the British pension system is being sold to the public by the media as an alarming “25% cut in benefits” for pensioners. But the fact is that these pensions were too high for a long time and this new scheme was inevitable due to the falling number of workers, the rising number of retirees, and the longer life spans that retirees now enjoy — a situation nearly every western nation is confronting. The government’s proposal is to sever the link of pensions to the Retail Price Index and link it instead to the Consumer Price Index, the latter of which is usually lower. The plans affected are those in the private sector as plans in the public have mostly already been shifted to the CPI.
According to the Daily Mail the RPI as the traditional standard of measuring inflation is at 5% while the CPI stands at 3.2% Linking pensions to the CPI could lower payouts up to 25% and save businesses “£100billion in the long run.”
Naturally the nay sayers shifted immediately into gear. Those opposed to this newest attempt to save the pension system claim that the move “might” violate EU human rights laws.
These private sector pensions are not forced to redraw their rules and ling to CPI, they are private after all. But this move by the government allows the private plans to be shifted without government standing in the way. Being “consistent” in pension plans is the goal according to government officials. It should also be remembered that these “cuts” are cuts in the percentage of automatic raises in benefits, not cuts in existing benefits.
The next move will be to scrap the fixed retirement age of 65 and allow older workers to stay employed for as long as they want or need to.
These struggles are instructive to what will have to be done in the U.S. and should be watched closely.