Looking for the smooth road to pension reform
The UK pension system is not working well. The problem is not with the government system – that is economically sound. It is with the savings-based schemes. They are not getting enough savings – partly because savers are forced to take on too much investment risk. The government does not want to make saving for pensions obligatory. But it should be able to design plans that share the risk better.
At bottom, the UK pension problem is not about savings plans but about a changing social structure. Lower birth rates, longer lives and earlier retirements all point in the same direction – to more former and fewer current workers. That means that a higher proportion of GDP has to go to old people – and, by default, a lower proportion to working people. Those still in work might not be happy with this shift, but the only way to avoid it is through big social changes. Much higher birth rates would work wonders, but only after many years. Massive immigration of workers would do the trick more quickly. But the obvious answer is lower retirement incomes and higher retirement ages.