Pensions in danger
Britain is the latest Western country to
wake up to the threats that longer lifespans and an aging population pose to its
pension system. As in most of the West, however, there is an almost total
reluctance to discuss one of the key ingredients of the problem: the low
In contrast, there is no such taboo in
East Asian countries, which are facing similar demographic shocks. This could
well be another case where Asia is learning from Western experience.
Britain's problem is fairly typical,
though far from being the worst in Europe. According to an exhaustive,
government-commissioned report published this month, there is a hole of $100
billion in provisions required to meet current levels of pension commitments,
assuming existing levels of savings, current retirement ages and predicted
advances in longevity.
Its prescription is an unremarkable mix
of advancing the retirement age, eventually to 70, increasing taxes to pay more
pensions and using incentives or compulsion to increase the rate of private
savings. The eventual mix will be a political decision, so the report does not
make any specific suggestions. But it does assume that these issues can and must
be urgently addressed by society and government.
So why, it must be asked, does the report
just accept low fertility as a given and not consider birthrates as a factor
susceptible to policy-making in the interests of society? Should we not consider
why the fertility rate in Britain is just 1.7, compared with the 2.1 needed to
ensure a naturally stable population, considering the consequences of a
continual aging process and massive population shrinkage? Should we not consider
the merits of policies that might reverse the trend? Should we not consider
major rewards for those who invest in a new generation and produce the human
factors of production necessary to ensure that any pensions are paid?
One can hear the outrage at the very
suggestion that Western governments should try to influence free choice in
parenthood. But governments have been doing so for years. It is implicitly
racist for self-styled liberals to object to pro-natal policies now needed in
rich countries while continuing to advocate policies in poor African and Asian
countries aimed at raising living standards by lowering birthrates.
Population policies do not in themselves
strike at free choice. Only China has made a habit of using force to reduce
births through a state-imposed one-child policy. Elsewhere, people have
responded to family planning education and availability.
What is now needed in countries with very
low birthrates is to help families and individuals choose the numbers of their
children by presenting them with the realistic economic consequences of those
choices. In turn, those will be set by tax incentives and pension policies
determined democratically and in the long-term interests of society.
High birthrates in the developing world
have been associated with the need to provide social security for the old.
Likewise today, very low birthrates are partly a consequence of the divorce of
social security from parenthood. Extended family systems cannot be recreated in
urban nuclear family societies. But that does not mean totally severing the link
between parenthood and provision of security in old age. It means using tax and
benefit systems to replicate its economic effect.
Asian countries such as Singapore,
Thailand and South Korea were among the most successful in the 1960s and 1970s
in promoting family planning to reduce birthrates. Resources generated by a
smaller population of dependent youth were shifted into raising living
standards, with dramatic results. So it is not surprising that these societies
are beginning to look at preventing the erosion of living standards when the
number of old dependents absorbs so much income.
Birth rates in South Korea are at about
the European level, and in Singapore and Hong Kong they are even lower. Japan is
already suffering the consequences of its rapid post-1945 demographic
All these countries are only beginning to
grope for solutions. But at least the topic is actively being discussed - and
not just because of hostility to migration as a solution.
Europe talks about immigration, but the
levels needed to offset low birthrates would be far in excess of anything
politically and socially acceptable. Europe also talks about encouraging people
to save more, but any big increase in savings in economies with declining
populations would be self-defeating, causing recession and lowering returns on
Unless it can face up to and reverse its
neglect of parenting, Europe's economic future is grim, regardless of savings
levels or pension systems.