Is the Indian Government's Finances in Trouble? Kejriwal

 

Understanding the Agnipath protest

--- Another view

Shekhar Gupta in The Print

The opposition to the Modi government’s ‘Agnipath’ scheme is being led by the articulate community of senior veterans on social and mainstream media, and by India’s dangerously burgeoning population of jobless youth. Especially in the Hindi heartland.

Counterintuitive though it is, we have to also note that these young people understand the nub of the ‘problem’ with Agnipath way better than the senior veterans do.

Most of the veterans are outraged because — among many things that they see as wrong with Agnipath — they think the Modi government is using the armed forces for employment generation.

The young see Agnipath as the opposite. They see it as an armed forces jobs destroyer, not generator. How, we will explain now. And why the very reason they are primarily angry makes a scheme like Agnipath good, we will explain as this argument unfolds.

First, the jobless young. They understand better not only because they know their politics better than venerable, well-meaning seniors with decades in uniform. They do as they come from the hyper-politicised and polarised heartland. They also know the hopelessness of the job market.

They see the absence of opportunity where they live and feel their own lack of skills needed for jobs in distant, booming growth zones. A government appointment whether in the railways, state government, police, anywhere is the only lifetime guarantee of a safe, well-paying job. The armed forces are by some distance the best.

We must not judge them because they “look like lumpen”, burn trains and battle with police. They are every bit as virtuous and deserving of our understanding as the millions of the best-educated who slog year after year paying enormous sums financing the booming ‘competition academy’ industry for those few UPSC jobs.

For the less resourceful or educated, for mere matriculates, an Army recruitment rally means the same thing as the big UPSC for those whose pictures you see in the full front-page advertisements in leading dailies from Unacademy, Byju’s, Vision IAS etc etc. They prepare just as assiduously for Army recruitment. How, ThePrint reporter Jyoti Yadav told us in this report from the rural heartland. 

The less privileged now see Agnipath as their own version of the UPSC being taken away. See it this way. Presume that UPSC exams weren’t held for two years because of Covid while millions prepared in hope. Now you announce that the recruitment for the All India Services will only be for four years and only one-fourth will get the full tenure.

Further, for like-to-like comparison, suppose you also set a new, lower maximum age limit to ensure our civil services remain youthful, and tough luck for those who grew too old in the past two years waiting. By the way, this is precisely why the government has now made its first Agnipath rollback and given this “one-time” maximum age relaxation to 23 years from 21.

Much bigger riots might break out in the same zones of the heartland if UPSC were disrupted like this. And you know what, our middle-/upper middle-class/elite public opinion will be entirely sympathetic to them. Even more than they might have been to the anti-Mandal protests and self-immolations in 1990. The “debates” on prime time and social media (which the Modi government takes much more seriously than people like us) would sound very different from what they do at this point.

I am not supporting the ongoing Agnipath protests or dismissing concerns over these as mindlessly elitist. These are a distressing, dangerous alarm for India. That our demographic dividend is becoming a wasteful disaster with crores of unemployed young seeing a government job as the holy grail.

No government can produce this many jobs. And certainly not in the armed forces, whose balance sheets and budgets are already an HR disaster. However flawed Agnipath might be, our armed forces need radical reform. But we need to understand these angry young people’s concerns.

Senior veterans erred instinctively into seeing this as a job-creating extravaganza exploiting the armed forces. It’s the opposite. Since India hasn’t held any recruitment rallies for more than two years, a “shortfall backlog” of at least 1.3 lakh has built up. It’s a cut of about 10 per cent from the pre-pandemic strength of the armed forces.

Here’s the math. Since only about 45,000 ‘Agniveers’ will be recruited now per year (compared to the usual 60,000 at full-tenure recruitment rallies), and only one-fourth will be retained after four years, this supposed shortfall will only rise. The most elementary calculation shows that at the current rate of 50,000-60,000 retirements each year, by 2030 the armed forces will field about 25 per cent fewer personnel than they did before the Covid break.

This will be a deliberate, substantive downsizing and a desirable outcome fully in tune with the global trend. The US military heavily cut its manpower and is reducing further, diverting dollars to standoff weapons and artificial intelligence. The Chinese PLA has been similarly downsizing. Agnipath can be fine-tuned, reinvented, renamed and relaunched. But something like it is needed.

Contrary to being a wasteful job-generating extravaganza, a tour of duty approach is to cut jobs, wages and pensions. The same money can go into drones, missiles, long-range artillery and electronics and minimising casualties in battles of the future. Even proper assault rifles in a resource-starved military machine. 

As respected former Army commander Lt. Gen. H.S. Panag pointed out in this article, an idea like Agnipath is well-intended, necessary and could do with improvements. But it is yet another rude reminder to the Modi government that however overwhelming, electoral popularity doesn’t empower them to enforce shock-and-awe change, no matter how virtuous. They’ve seen it with the now repealed farm laws, stalled labour codes and withdrawn land acquisition bill.

A big change has to be reasoned out, public opinion prepared. People respond to abrupt change in their hundreds of millions, have anonymity and safety in numbers unlike the few hundred fawning ruling party MPs, a few score of ministers or a dozen chief ministers.

Whether it’s land acquisition for job-creating industry and infrastructure, labour and farm reform to unleash new forces of entrepreneurship, or modernising the armed forces, you have to evangelise your ideas to people patiently. Allow a robust debate in public and Parliament instead of dismissing anyone disagreeing as anti-national or bought out by some evil force. It’s an ordinary, normal and inevitable exercise in the same democracy that gifts you extraordinary electoral power.

Finally, we need to look at the geography and politics — or shall we be cheeky and say geopolitics — of these protests. Geography first.

If you map the nearly 45 places where rioting has broken out, there will be a hornet’s nest of sorts in Bihar, eastern Uttar Pradesh, Bundelkhand, southern Haryana and Rajasthan.

We can safely classify these as India’s primary low-wage migrant labour exporting zones. Check out, for example, where the mostly poorly paid and security guards doing daily double shifts in your neighbourhood come from.

At least so far, this spark mostly hasn’t travelled South barring Secunderabad-Hyderabad. Let’s hope and pray it stays that way. Unlike the heartland, the south-of-Vindhyas states have their birth rates, education levels, investment and job creation much more sorted. It doesn’t mean that Indians there are any less patriotic.

And now the politics. With the farmers’ protests the epicentre was Punjab, the state least impressed with the Modi phenomenon in all of India as repeated elections from 2014 onwards have shown. This current anger comes almost entirely from BJP/NDA-run states, from the very core of the Modi-BJP base. It’s safe to presume that a vast majority of these angry young people are loyal Modi voters.

The lesson is, there is more to democracy than electoral popularity. You need to keep reasoning with your constituents all the time. Especially on why some drastic change they fear might be good for them. People have an immune system that detests and fears sudden change plonked on their heads.

The Modi government’s biggest flaw over these eight years has been its disinclination to accept the limitations of electoral majorities. This has already ruined land acquisition and farm reform and stalled the labour codes, and it will be tragic if the armed forces’ downsizing and modernisation is derailed too.

Inflation: managing the threat to your pension

John Plender in The FT

 
Lenin, the Russian revolutionary leader, is said to have remarked that the best way to destroy the capitalist system was to debauch the currency. 

The Bank of England currently forecasts that inflation in the UK will soon top 10 per cent. This falls short of outright currency debasement. Yet we live in an economy where the capitalists are no longer a tiny group of rentiers and rich business moguls but ordinary people with savings tied up in pension schemes. 

With the general price level rising at the fastest rate since the 1970s there is a serious threat to UK retirement incomes. 

Behind Lenin’s aphorism is an important political truth, namely that inflation brings about a transfer of wealth from creditors to debtors that is unsanctioned by democratic or legal process. 

Because inflation is a monetary phenomenon, the big winners in investment terms tend to be owners of assets that act as a residual sink for the excess money created by central banks. Real assets such as property are an obvious example. So, too, are energy companies and commodities including gold. 

Some argue that crypto assets fall into the same category. Certainly they have been boosted by ultra-loose monetary policy since the 2007-09 financial crisis. But, as I argued here in a piece on the respective investment merits of bitcoin and gold in April, the record of crypto as an inflation hedge is unproven and bitcoin’s performance in recent months has been disastrous in terms of providing a haven against spiralling prices. 

The big losers from inflation are fixed-interest investments such as gilts — a core holding in British pension funds. The capital value and income stream shrink in real terms and tend to underperform equities when price levels are rising fast. 

Debtors who have borrowed on fixed-price contracts enjoy a windfall, notably the government. And since much property is financed by fixed-interest debt, property investors can experience a double win as the value of the asset goes up while the real value of the related debt goes down. 

For savers and pensioners, this underlines the importance of avoiding bonds, and shifting to real assets and value equities which tend to outperform in inflationary times. 

Where possible, it makes sense to fix mortgage rates for longer while nominal interest rates are still at historically low levels and real interest rates will remain negative in the short to medium term. 

The losers from inflation are people on any kind of fixed income — such as annuities — and householders who rent rather than own. 

No perfect answers  

But there are no perfect investment antidotes to inflation and even property is not a foolproof protection, as experience in the late 1970s demonstrated. In my book That’s the Way the Money Goes, published in 1982, I chronicled how many large pension funds incurred huge losses in real estate. The ICI and Unilever pension funds, for example, took devastating hits from their investment in speculative property development in continental Europe, undertaken in both cases in joint ventures with dodgy entrepreneurs who had been severely criticised by Department of Trade inspectors. 

Back then, pension funds were minimally regulated and not required to reveal their finances. Fund managers were panicking as the retail price index reached a year-on-year peak of 26.9 per cent in 1975 and doing inadequate due diligence in their search for havens against the inflationary storm. 

Today, there is greater transparency and funds are so heavily regulated that the risk of such accidents is lower. But management matters. Property does not lift all boats during periods of high inflation. 

Note that there were no index-linked gilts in the 1970s. Yet today, paradoxically, index-linked securities fail to provide any protection against current 7 per cent inflation in the short run. 

This is because they are driven by relative real yields rather than inflation per se. That is, when the yield on nominal gilts rises closer to the rate of inflation the negative real yield falls. So the negative yield on index-linked bonds has to shrink to remain competitive, causing the price to fall. The longer the maturity, the greater potential for loss. Earlier this week the price of the 2068 index linked gilt was down more than 44 per cent since late November — an astonishing plunge. 

Investment returns in the first quarter of this year, when investors came to distrust the central banks’ claim that inflation was transitory, confirm this broad picture around winners and losers. 

According to consultants LCP, fixed-interest gilts delivered a return of minus 12.3 per cent, while index-linked showed minus 6.4 per cent. Overseas equities delivered minus 2.5 per cent, trading under the shadow of rising interest rates and the war in Ukraine. UK equities were positive at 0.5 per cent, no doubt reflecting the energy, commodity and financial services bias of the UK stock market, while commercial property led the field with a positive return of 4.6 per cent. 

Some protection in defined benefit funds 

The impact of inflation on pension scheme members varies according to the nature of the scheme and members’ individual circumstances. Defined benefit schemes, managing £1.9tn of assets at the start of the decade, provide good protection for those still in work because the pension promise is in most schemes related to final pay. 

For defined benefit scheme members their fund’s investment performance is thus of no great importance — unless, that is, the fund is in deficit and the employer is at risk of bankruptcy. If the sponsoring company becomes insolvent and the scheme does not have sufficient assets to meet its pension commitments the official Pension Protection Fund will provide a safety net. But for many the compensation provided by the PPF will fall short of the level they expected. 

Once retirement is reached there is a hierarchy of pension winners and losers. The biggest winners are civil servants and public sector workers whose defined benefit pensions are fully indexed. Where the retail price index is the yardstick they are arguably on a gravy train because the RPI is based on an outdated arithmetic formula (called the Carli index) which official statisticians claim results in systematic overstatement of inflation. 

Where trust deeds permit, pension schemes are now required to change the indexation benchmark to the more realistic consumer price index. But there is a residue of pension scheme members for whom the RPI will continue to deliver an unwarranted bonus, creating inequality within many funds. A further complication is that neither index may be representative of a given individual’s spending patterns. 

Very few private sector defined benefit schemes offer complete indexation of benefits. They usually incorporate an inflation cap, typically up to 5 per cent, so pensioners are dependent on trustees paying discretionary increases to shore up their living standards in a high inflation environment. The ability of trustees to do this is constrained by the high proportion of assets devoted to liability matching which involves pairing the timing of pension outflows with bond cash flows around the same dates. 

The Office for National Statistics estimates that at the end of 2019 nearly 70 per cent of direct investments in private sector schemes were in long- term debt securities of which three-quarters was in gilts. This means that the return-seeking portion of these portfolios, out of which discretionary pension increases can be paid, is limited. That could be a serious impediment to such increases if inflation were to go much higher. 

Defined contribution plans at the mercy of markets 

With defined contribution (DC) or money purchase plans, investment returns are crucial to the level of pension that scheme members receive. The latest pension survey by the ONS noted that there are now 22.4mn people in DC schemes compared with 18.3mn in DB. 

This reflects the closure to new members of countless private sector DB schemes as employers baulked at the cost supporting them. They have thereby shifted the risk of pensions funding to the employees, although they continue to pay contributions into DC schemes. 

Because this switch from DB to DC is relatively recent, gross assets of DC schemes were only £146bn at the end of 2019. So 94 per cent of the total gross assets in occupational pensions in the UK are still held in DB schemes. 

Most DC money is in pooled funds. While members are offered a menu of investments from which to choose, the majority go for a default lifecycle option. For most of an employee’s career this will involve a bias towards growth assets such as equities. Much of this will be in passive funds that match market indices. So for the purpose of beating inflation, scheme members have a binary dependence on market movements and the skills of active asset managers. Then, as retirement approaches, the portfolio is rebalanced towards so-called safe assets such as nominal and index-linked gilts. 

For those in the period between de-risking and retirement this ineptly and misleadingly named de-risking process is a formula for value destruction at a time of rising inflation because interest rates rise and bond prices fall. As mentioned earlier, the scope for capital loss in index-linked gilts is considerable. 

Of course, scheme members who are about to make the shift away from a growth bias today will have the benefit of cheaper bond market valuations after the recent inflation-induced falls in gilt prices. Yet there is a strong likelihood of further falls if gilt market yields revert to anything remotely near historical norms. 

Rather than taking cash or converting their pension pot into an annuity most scheme members taking the default option will end up with a drawdown arrangement where they can take money out of their fund at times of their own choosing to suit their retirement needs. The asset allocation at retirement will usually consist of a mix of equities and bonds. 

The big worry then is whether stagflation — a combination of inflation with low growth — will play havoc with the portfolio because low growth is bad for equities while inflation is bad for bonds. The benefit of portfolio diversification may therefore be lost. 

Central bank policy switch raises big questions 

Today’s DC scheme members are substantially at the mercy of policy driven markets. After years in which asset prices have been artificially inflated by the asset buying programmes of the central banks — quantitative easing — central bankers have changed gear. In the past fortnight the US Federal Reserve and the Bank of England have raised interest rates while the European Central Bank is widely expected to raise rates in July. All three are expected to shrink their balance sheets, withdrawing their buying power from the bond markets. 

Signals from the Fed weigh heavily on global markets including the UK. According to former New York Federal Reserve president Bill Dudley the Fed wants a weaker stock market and higher bond yields to help tighten financial conditions in the face of soaring inflation. 

The move to quantitative tightening will raise a big question as to what level of yields will be needed to attract non-central bank buyers to fund high government spending after the pandemic. 

Another question is how far inflation expectations have become entrenched or “de-anchored” in the jargon. The big lesson from the 1970s was that if central banks do not act fast to curb surging inflation and expectations become unmoored it takes a bigger recession to cure the inflationary disease. Today’s high inflation numbers suggest that they have left remedial action very late. Engineering a soft landing will be an intricate and dangerous balancing act. 

Misery for annuity holders 

That brings us to the bottom category in the hierarchy of pensions winners and losers. This concerns DC scheme members who have converted their pension pot into fixed annuities over the past dozen years. In effect, they have been stiffed twice over by the central banks. First, because quantitative easing led to overblown bond market prices and thus dismally low yields from which to pay annuities. Second, by going slow in their assault on inflation the central banks have further undermined the real value of already low annuity incomes. 

Fortunately, the number of DC annuitants will be very low because so many scheme members have taken the default lifecycle drawdown option. But that will not mitigate the misery of those who, not unreasonably, sought a secure and predictable retirement income. 

However, the scope for accidents among those who have gone the drawdown route is now very high because of the uncertainties created by soaring inflation. Working out the need for cash in retirement is a challenge in non-inflationary times. Now it is even tougher, with the additional worry that a shortage of care home workers could mean that the cost of late life care will rise much faster than consumer price inflation. 

With the cost of living crisis raging, workers’ pension contributions will be harder to keep up. Former pensions minister Sir Steve Webb points out that there is a real risk that cost of living pressures may lead workers aged 55 and over to take advantage of “pension freedoms” legislation to raid their pension pot before they reach retirement age. In a letter to The Times, he says that with a growing number of workers getting no inflation protection from their workplace pension, the role of the state pension will become even more important. So will the need for next year’s state pension increase to properly compensate for inflation. 

Inflation reallocates risk 

To return to Lenin, capitalism is not at risk from today’s inflationary pressures. But the hierarchy of pensions winners and losers demonstrates the random and arbitrary way in which risk is being reallocated within society. With so many DC scheme members putting too little into their pension pots to secure a half decent retirement income even before this burst of inflation occurred, a looming retirement poverty problem will now be exacerbated. That underlines the imperative need to bring inflation back under control.

Why We Can't Retire

 

Debt - you are not alone: Start of a Debt Collective

 

Government Pensions subject to 'Good Behaviour'

Lt. Gen. H.S Panag (retd.) in The Print

On 31 May, the Ministry of Personnel, Public Grievances and Pensions, which is headed by Prime Minister Narendra Modi, issued a gazette notification amending Rule 8 — “Pension subject to future good conduct” — of the Central Civil Services (Pension) Rules 1972. The amendment prohibits retired personnel who have worked in any intelligence or security-related organisation included in the Second Schedule of the Right to Information Act 2005 from publication “of any material relating to and including domain of the organisation, including any reference or information about any personnel and his designation, and expertise or knowledge gained by virtue of working in that organisation”, without prior clearance from the “Head of the Organisation”. An undertaking is also supposed to be signed to the effect that any violation of this rule can lead to withholding of pension in full or in part.

There are 26 organisations included in the Second Schedule of the RTI Act, including the Intelligence Bureau, Research & Analysis Wing, Directorate of Revenue Intelligence, Central Bureau of Investigation, Narcotics Control Bureau, Border Security Force, Central Reserve Police Force, Indo-Tibetan Border Police and Central Industrial Security Force. These organisations are excluded from the RTI Act. Ironically, the armed forces, which are responsible for the external and at times internal security, are covered by the Act.

In 2008, Rule 8 was first amended to make more explicit the existing restrictions under the Official Secrets Act by barring retired officials from publishing without prior permission from Head of the Department any sensitive information, the disclosure of which would “prejudicially affect the sovereignty and integrity of India, the security, strategic, scientific or economic interests of the State or relation with a foreign State or which would lead to incitement of an offence.” An undertaking similar to the present amendment was also required to be signed.

The scope of the 31 May amendment is all-encompassing and its ambiguity leaves it open for vested interpretation and virtually bars retired officers who have served in the above-mentioned organisations from writing or speaking, based on their experience in service or even using the knowledge and expertise acquired after retirement. There is an apprehension that in future, the rules of other government organisations, including the armed forces, may also be amended to incorporate similar provisions. 

The motive behind the amendment

All governments are legitimately concerned with safeguarding national security. Almost all countries have laws for the same. However, political dispensations often use these provisions to stifle criticism of the government, particularly by retired government officials who, based on their domain knowledge and experience, enjoy immense credibility with the public.

Originally, Rule 8 allowed withholding/withdrawal of pension or part thereof, permanently/for a specified period if the pensioner was convicted of a serious crime or was found guilty of grave misconduct. “Serious crime” included crime under Official Secrets Act 1923 and “grave misconduct” also covered communication/disclosure of information mentioned in Section 5 of the Act.

There was no requirement of prior permission before publication of any book or article, and prosecution under Official Secrets Act was necessary before any action could be taken. No undertaking was required to be given by the retiree officials. There is no noteworthy case in which this provision was invoked.

The motive behind the 2008 amendment by the UPA and the present amendment by the NDA, was/is to crack down on dissent by retired officials without the due process of law. This, when despite recommendations of the Law Commission and Second Administrative Reforms Commission, no effort has been made to amend the 98-year-old Official Secrets Act to cater for current requirements of national security. The only difference between the two amendments is that the latter makes the rule more absolute by adding the ambiguous rider regarding publication without permission “of any material relating to and including ‘domain of the organisation’, including any reference or information about any personnel and his designation, and expertise or knowledge gained by virtue of working in that organisation.”

The amendment to Rule 8 is unlikely to withstand the scrutiny of law. The Supreme Court and the high courts have repeatedly upheld the principle that “pension is not a bounty, charity or a gratuitous payment but an indefeasible right of every employee”. The government cannot take away the right merely by giving a show cause notice to a retired official for having used “domain knowledge or expertise” while writing an article/book or speaking at any forum. Any application of this amendment will be thrown out by the courts. No wonder that there has been no known application of the amended rule since 2008. There has been no alarming increase in cases under the Official Secrets Act. Between 2014 and 2019, 50 cases have been filed in the country and none against a government official. And if a government official is actually guilty of violating national security, then is withdrawal of pension an adequate punishment?

What does the government then gain by this amendment? Simple, the new amendment acts as deterrent against criticism by retired officials. Which self-respecting retired government official would like to seek permission from her/his former junior or fight a prolonged legal battle to get his pension restored? The government’s will, thus, prevail not by the wisdom of its decision but by default.
 
Loss to the nation

All major democracies make optimum use of the experience of their retired government officials. While some become part of the government, others contribute by educating the public and throwing up new ideas/suggestions for the consideration of the government. The domain expert keeps a check on a majoritarian government facing a weak opposition by publicly speaking and writing. All governments try to hide failures and scrutiny for inefficiency. With a weak opposition and government-friendly media, the Bharatiya Janata Party dispensation is more worried about the perceived threat from the retired officials with domain expertise than an ill-informed opposition.

Given the Modi government’s obsession with respect to national security and its lackadaisical performance in its management, it is my view that in the near future, the government will incorporate similar provision in the pension rules of other government departments and the armed forces.

A case in point is the attempt by the Modi government to deny/obfuscate the intelligence failure and the preemptive Chinese intrusions. To date no formal briefing has been given about the actual situation in Eastern Ladakh. Doctored information has been fed to the media through leaks by government/military officials. Three retired defence officers, including the author, brought the real picture before the public through articles and media interviews. All were careful to safeguard operational security. A concerted campaign was launched to discredit these retired officers through government-friendly media and pliant defence analysts until the events overtook their detractors to prove them right. The author extensively used his knowledge of the terrain in Eastern Ladakh to bring the truth before the public. In a similar situation in future, these officers may well be battling in courts to safeguard their pensions.

Imagine a situation that in future when no historical accounts of our wars, counter insurgency/terrorism campaigns and communal riots can be written by retired government and armed forces officers. No retired official will be eligible to head our security related thinks tanks or speak in international forums about our experience. Despite provision of Section 8(3) of the RTI Act to declassify documents after 20 years, the government never does so except to score political points as in the case of Netaji Files.

The amendment to Rule 8 of Central Civil Services (Pension) Rules 1972 is nothing more than a blatant, overarching and draconian gag order against retired officials to manage the public narrative for political interests under the garb of safeguarding national security.

It safeguards the interests of the political dispensation and not the nation. It must be challenged in the courts and in the interim disregarded with contempt.

Will UK house prices ever rise again?

The recent gains could turn out to be a huge historical anomaly writes Merryn Somerset Webb in The FT

If there is one thing that drives financial journalists in the UK to distraction it is celebrities. Every weekend the money pages of newspapers carry interviews with various semi-famous people asking them about how they invest. Every weekend the semi-famous people say they don’t invest in the stock market or save into a pension because it is too complicated. They invest in property instead. Buy houses, they say, and you have something “you can see”: You “know where you are with bricks and mortar”. 

The problem with this is simple. You might think you know where you are with bricks and mortar. But the truth is that you probably don’t — unless you have a complete grasp of how population trends, interest rates and political priorities have shifted over the past century and how they might shift again over the next. Just because the period in which most of us have become adults has been one of almost nonstop property price growth does not mean that it makes sense to extrapolate that growth indefinitely. It might not.

The latest Deutsche Bank Long Term Asset Return Study (written by Jim Reid and his team of analysts) takes a proper look at the evidence. It turns out that fast-rising house prices in the UK are a relatively recent phenomenon. They have risen on average 3 per cent a year in inflation-adjusted terms since 1939 (a total of 834 per cent). But before that they mostly fell — 50 per cent in inflation-adjusted terms from 1290 to 1939. These data are obviously not precise — Reid points out that the housing market has changed beyond all recognition over the past 800 years and that the numbers have been collated using “many assumptions”. However, you get the general idea. Perhaps our celebrities should be spending less time assuming their financial future will be the same as their financial past, and more time asking two questions: What changed in the middle of the last century? And will it change back? 

The answer to the first question brings us to demographics. The world began to change in 1796 when Edward Jenner introduced the first vaccine for smallpox (the major killer of the time) and so created a dramatic rise in life expectancy and the beginnings of a rise in the number of people in the world: the global population rose by a mere 0.17 per cent a year until 1820 but 0.98 per cent a year from then to 2000 (this rise was what allowed the industrial revolution to happen, by the way). However, it is the past 70 years — the ones most of us use as our map for the future — that have been genuinely dramatic: from 1950 to 2000 the global population more than doubled, from 2.5bn to around 6.1bn.

That has had all sorts of consequences — ones that have long looked mystifying if you don’t understand population but which have looked rather predictable if you do. If you had looked properly at birth rates in the G7 in the postwar period you would not have been surprised that inflation and unemployment rose in the 1970s as the baby boomers began to both “jostle for their first jobs” and to consume global resources on a huge scale, says Paul Hodges chairman of London-based strategy consultancy IeC. 

You would have expected stock markets to start to boom in the 1980s as those same boomers moved into their thirties and forties and started to pour cash into investments to finance their retirements. And you surely would have known that all those babies growing up in the affluent stability of the postwar world would want to form their own households and would be encouraged by rising global affluence to want to do so in bigger and better houses than their parents. You might also have noted the political power of the boomers and guessed that the regulatory environment would be shaped to suit them — think tax relief on mortgage payments and no capital gains tax on the sale of primary homes in the UK, for example. And so it began. Demand pushed up prices — and pushed them up even more in low-supply Britain than elsewhere. 

As prices rose baby boomers figured that homes looked like a hot tip of an investment and, enabled by the rise of the fiat money system (the final collapse of any link to the dollar to gold in 1971 meant money supply was able to rise with the population), bought more. Nearly half the 2.5m buy-to-let investors in the UK now say they are “pension pot” investors. They own one house to live in and another as an investment. Perhaps, says Reid, “housing is the ultimate population-sensitive asset”. “As a small island with heavy control over new home building, high population growth but limited supply has put massive upward pressure on prices over the last several decades.” 

He is right of course. But it is worth noting that the whole thing could never have happened without the full support of the central banks. One of the consequences of population growth was the abolition of a formal connection between currencies and gold, something that has allowed governments and central banks to print money and shift interest rates around as they like. That, in turn, has given us a long period of very low interest rates — which have shoved a rocket booster under house prices. In the UK, the actual monthly cost of buying a home fell dramatically after the financial crisis and has been more or less flat for several years. Even as the price of houses has risen, the fall in interest rates has kept the mortgage cost of buying much the same. 

On to the second question: will this all change back? Is it possible that we might be moving into an age of static to falling house prices? It is. Listen to the pessimists and you might think the global population will soon double again. But the rate of growth peaked long ago (in 1968 at just over 2 per cent a year). It is now down to more like 1 per cent. The main driver behind the extraordinary past 70 years is receding: the baby boomers are more likely now to be sellers than buyers. You could argue that the attractiveness of the UK as a place to live means our population will rise indefinitely and so will property prices — but to do so you would have to pile a lot of assumptions on top of each other: that the UK remains desirable; that it remains desirable enough that people are happy to pay a hefty premium for a house in it; and that it remains open to high levels of immigration. 

At the same time interest rates are beginning to drift up again. Jim Reid notes that the 1950-2000 period has been “like no other in human or financial history in terms of population growth, economic growth, inflation or asset prices”. It may stay that way. 

Worse (for those who want house prices to rise forever), legislation is on the turn. In the UK, the fast rise in house prices has created a class of winners and another of losers. The losers have had enough — and our cash-strapped government is now on their side. 

So second-homebuyers have been hit with council tax rises and an additional rate of stamp duty (an extra three percentage points). Buy-to-let investors have seen a sharp reduction in the scope of the tax relief available to them on their rental income as well as a shift in power back towards tenants (in Scotland in particular), stricter affordability requirements on their mortgage applications and a raft of new energy efficiency rules and licensing laws. They also pay capital gains tax at 28 per cent when they sell their properties (it is 20 per cent on everything else). There are also calls for new wealth taxes on all UK property — or sharp rises to council taxes at the top end. All four major UK parties are now showing interest in land value taxes and in scrapping what tax exemptions there are left for property owners. 

The recent budget didn’t have much in it, but space was found for two measures — a cut in the capital gains tax relief on houses that were once main residences, and a consultation on a 1 per cent surcharge for non-UK residents buying UK property. It doesn’t look good does it? 

So when will the shift to what was normal in the housing market 80 years ago begin? You could argue (and Hodges does) that it began in 2000 as the baby boomers started to shift down — and that the boom since 2009 has been a last gasp of a soon-to-slow market. With the Brexit fog all about us and fallout from the financial crisis still clearing, it is hard to tell what is causing what. But look to London and that makes some sense: prime London house and flat prices are down 30 and 25 per cent, respectively, since their peak several years ago and most data now show nationwide prices rising slightly less than inflation. 

There’ll be volatility here for a while — a post-Brexit bounce seems inevitable, for example, and a bout of consumer price inflation is likely over the next decade (you can see it coming in rising wages), something that might make holding real assets such as property not the worst idea in the world. But if prices revert to very long-term means, the period in which all our celebrities have made their property fortunes is going to turn out to have been a huge historical anomaly. I wonder what the ones who are being asked “property or pension” in 30 years will say.

Auditors and Directors failed Carillion

Nils Pratley in The Guardian

Apart from the junior director who tried to speak against the delusion in Carillion’s boardroom, nobody emerges with credit from the two select committees’ post-mortem on the contracting firm. The other directors, led by chairman Philip Green, chief executive Richard Howson and finance director Richard Adam, were directly responsible for the failure because they were either “negligently ignorant of the rotten culture” or complicit in it. But the entire system of checks and balances failed.

The auditors, KPMG, were useless, as was the audit industry’s passive regulator. The government, in the form of the Crown Representative, was asleep. The Pensions Regulator was feeble. City advisers to Carillion were paid to be supine. Big shareholders were not inquisitive. None of those judgments will surprise those who followed the evidence sessions, but the MPs’ report will count for little unless it forces action from government. Three areas are priorities.

First, reform the auditing industry. The public lost faith in auditors when HBOS and Royal Bank of Scotland collapsed without a squeak of warning from the people signing off the accounts. Now there’s Carillion, where the report accuses KMPG, which had the auditing gig for 19 years, of failing to exercise professional scepticism – the basic requirement of the job.

The MPs’ prescription is not original, but is correct. Get the Competition and Markets Authority to look at two specific proposals: a breakup of the big four auditors or a separation of the auditing arms from their consultancy operations.

Concentration in this market has now reached absurd levels – the big four are auditors to 97% of FTSE 350 companies. Carillion perfectly illustrated the closed shop in action. KMPG approved the accounts, Deloitte advised the board on risk management, and EY was consulted on turnaround plans. That left the field clear for PwC to name its price as adviser to the Official Receiver.Quick guide
All you need to know about CarillionShow

A proper shakeup of the industry would probably mean an increase in the cost of audits, but that will be money well spent if it means more competition and higher standards. “KPMG’s long and complacent tenure auditing Carillion was not an isolated failure,” says the report. “It was symptomatic of a market which works for members of the oligopoly but fails the wider economy.” Spot on.

Second, ministers need to understand the risks they take when they outsource work to companies of Carillion’s size. The failed firm had 450 government contracts and the Crown Representative, looking out for taxpayers’ interests, had no insight into how badly things were going wrong. The huge profit warning in July 2017, which marked the beginning of the end, was a complete shock in Whitehall.

The report is short on specific proposals, other than telling ministers to appreciate that “the cheapest bid is not always the best”. But there are good ideas around, and some have even come from the contractors’ side of fence.

Rupert Soames, the chief executive who led the rescue of Serco to prevent an earlier Carillion-style calamity, has suggested a few: open-book accounting so that the Cabinet Office and National Audit Office have the numbers; bank-style “living wills” so that contracts can be handed back to government without huge costs to the public purse; and a code of conduct that, on the supplier’s side, would involve conservative financing, timely payment of subcontractors, and adequately funded pension schemes.

The government is free to demand all that and more. It just requires the penny to drop that, when you’re buying £200bn of goods and services from the private sector each year, you can change the way business is conducted.

The third priority is pensions, since Carillion dumped an £800m liability on the industry lifeboat. The Pensions Regulator’s threats were hollow and its bluff was called, the report says. The directors were allowed to keep paying a dividend to shareholders that was plainly unaffordable.

It’s now too late for excuses or pleas about insufficient powers. The MPs’ hard judgment is that “a tentative and apologetic approach is ingrained” at the regulator and “the current leadership” may not be equipped for cultural change. That sounds like a call for Lesley Titcomb, the chief executive, to go. It would be personally tough on her, since she arrived in 2015, by which time the worst mistakes on Carillion had been made, but she should take the hint. A pensions regulator needs to be feared.

The overall report is impressive – it drips with anger and is strong on detail. It would be disgrace if it fell between the cracks of Brexit. It is essential that the government makes a point-by-point response – starting with the auditors, who escaped from the scene of the banking catastrophe but whose moment in the spotlight is now.

Court orders Taiwan dentist to pay his own mother for raising him

The Guardian





Taiwan’s top court has ordered a dentist to pay his mother around £554,000 as reimbursement for the money she spent raising and educating him.

The supreme court upheld a previous ruling that the 41-year-old, identified by his family name, Chu, should honour a contract he signed with his mother 20 years ago promising to repay her.

The plaintiff, surnamed Lo, divorced her husband in 1990 and raised their two sons on her own.

Worried that nobody would look after her when she got old, Lo signed the contracts with her sons after they both turned 20, stipulating that they must pay her 60% of the net profit from their incomes.

The supreme court said the contract was valid as Chu was an adult when he signed it, and that as a dentist he was capable of repaying his mother. It ordered him to pay Tw$22.33m ($744,000).

Lo accused her sons of ignoring her after they both started relationships, saying their girlfriends even sent her letters through their lawyers demanding her not to “bother” her sons, according to local reports.

She filed the lawsuit eight years ago when they refused to honour the contracts. The older son eventually paid her Tw$5m to settle the case.

Her younger son claimed that the contract violated “good customs” as raising a child should not be measured in financial terms, and went to court against his mother.

Lo appealed all the way to the supreme court after lower courts ruled in favour of her son.

Cases of abuse and abandonment of senior citizens have been on the rise in Taiwan in recent years, prompting calls for a law to jail adults who fail to look after their elderly parents although it is yet to pass.

Agence France-Presse in Taipei

A world without retirement

Amelia Hill in The Guardian


We are entering the age of no retirement. The journey into that chilling reality is not a long one: the first generation who will experience it are now in their 40s and 50s. They grew up assuming they could expect the kind of retirement their parents enjoyed – stopping work in their mid-60s on a generous income, with time and good health enough to fulfil long-held dreams. For them, it may already be too late to make the changes necessary to retire at all.

In 2010, British women got their state pension at 60 and men got theirs at 65. By October 2020, both sexes will have to wait until they are 66. By 2028, the age will rise again, to 67. And the creep will continue. By the early 2060s, people will still be working in their 70s, but according to research, we will all need to keep working into our 80s if we want to enjoy the same standard of retirement as our parents.

This is what a world without retirement looks like. Workers will be unable to down tools, even when they can barely hold them with hands gnarled by age-related arthritis. The raising of the state retirement age will create a new social inequality. Those living in areas in which the average life expectancy is lower than the state retirement age (south-east England has the highest average life expectancy, Scotland the lowest) will subsidise those better off by dying before they can claim the pension they have contributed to throughout their lives. In other words, wealthier people become beneficiaries of what remains of the welfare state.

Retirement is likely to be sustained in recognisable form in the short and medium term. Looming on the horizon, however, is a complete dismantling of this safety net.

For those of pensionable age who cannot afford to retire, but cannot continue working – because of poor health, or ageing parents who need care, or because potential employers would rather hire younger workers – the great progress Britain has made in tackling poverty among the elderly over the last two decades will be reversed. This group is liable to suffer the sort of widespread poverty not seen in Britain for 30 to 40 years.

Many now in their 20s will be unable to save throughout their youth and middle age because of increasingly casualised employment, student debt and rising property prices. By the time they are old, members of this new generation of poor pensioners are liable to be, on average, far worse off than the average poor pensioner today.

A series of factors has contributed to this situation: increased life expectancy, woeful pension planning by successive governments, the end of the final-salary pension scheme (in which people got two-thirds of their final salary as a pension) and our own failure to save.

For two months, as part of an experiment by the Guardian in collaborative reporting, I have been investigating what retirement looks like today – and what it might look like for the next wave of retirees, their children and grandchildren. The evidence reveals a sinkhole beneath the state’s provision of pensions. Under the weight of our vastly increased longevity, retirement – one of our most cherished institutions – is in danger of collapsing into it.

Working just as hard, but unpaid? What happens when women retire



Many of those contemplating retirement are alarmed by the new landscape. A 62-year-old woman, who is for the first time in her life struggling to pay her mortgage (and wishes to remain anonymous), told me: “I am more stressed now than I was in my 30s. I lived on a very tight budget then, but I was young and could cope emotionally. I don’t mean to sound bitter, but I never thought I would feel this scared of the future at my age. I’m not remotely materialistic and have never wanted a fancy lifestyle. But not knowing if I will be without a home in the next few months is a very scary place to be.”

And it is not just the older generation who fear old age. Adam Palfrey is 30, with three children and a disabled wife who cannot work. “I must confess, I am absolutely terrified of retirement,” he told me. “I have nothing stashed away. Savings are out of the question. I only just earn enough that, with housing benefit, disability living allowance and tax credits, I manage to keep our heads above water. I work every hour I can just to keep things afloat. There’s no way I could keep this up aged 70-plus, just so that my partner and I can live a basic life. As for my three children … God knows. I can scarcely bring myself to think about it.”

It is not news that the population is ageing. What is remarkable is that we have failed to prepare the ground for this inevitable change. Life expectancy in Britain is growing by a dramatic five hours a day. Thanks to a period of relative peace in the UK, low infant mortality and continual medical advances, over the past two decades the life expectancy of babies born here has increased by some five years. (A baby born at the end of my eight-week The new retirement series has a life expectancy almost 12 days longer than a baby born at the start of it.)

Dr Peter Jarvis and Sue Perkins at Bletchley Park. Photograph: Linda Nylind for the Guardian

In 2014, the average age of the UK population exceeded 40 for the first time – up from 33.9 in 1974. In little more than a decade, half of the country’s population will be aged over 50. This will transform Britain – and it is no mere blip; the trend will continue as life expectancy increases. This year marked a demographic turning point in the UK. As the baby-boom generation (now aged between 53 and 71) entered retirement, for the first time since the early 1980s there were more people either too old or too young to work than there were of working age.

The number of people in the UK aged 85 or more is expected to more than double in the next 25 years. By 2040, nearly one in seven Britons will be over 75. Half of all children born in the UK are predicted to live to 103. Some 10 million of us currently alive in the UK (and 130 million throughout Europe) are likely to live past the age of 100.


Governments see raising the state retirement age as a way to cover the cost of an ageing population

The challenges are considerable. The tax imbalance that comes with an ageing population, whose tax contribution falls far short of their use of services, will rise to £15bn a year by 2060. Covering this gap will cost the equivalent of a 4p income tax rise for the working-age population.

It is easy to see why governments might regard raising the state retirement age as a way to cover the cost of an ageing population. A successful pursuit of full employment of people into their late 60s could maintain the ratio of workers to non-workers for many decades to come. And were the employment rate for older workers to match that of the 30-40 age group, the additional tax payments could be as much as £88.4bn. According to PwC’s Golden Age Index, had our employment rates for those aged 55 years and older been as high as those in Sweden between 2003 and 2013, UK national GDP would have been £105bn – or 5.8% – higher.

There are, of course, problems to this approach. Those who can happily work into their 70s and beyond are likely to be the privileged few: the highly educated elite who haven’t spent their working lives in jobs that negatively affect their health. If the state pension age is pushed further away, for those with failing health, family responsibilities or no jobs, life will become very difficult.

The new state pension, introduced on 6 April 2016, will be paid to men born on or after 6 April 1951, and women born on or after 6 April 1953. Assuming you have paid 35 years of National Insurance, it will pay out £155.65 a week. The old scheme (worth a basic sum of £119.30 per week, with more for those who paid into additional state pension schemes such as Serps or S2P) applies to those born before those dates.

Frank Field, Labour MP and chair of the work and pensions select committee, told me that the new figure of just over £8,000 a year is enough to guarantee all pensioners a decent standard of living: an “adequate minimum”, as he put it. Anything above that, he said, should be privately funded, without tax breaks or other government help.

“Once the minimum has been reached, it’s not the job of government to bribe people to save more,” he says. “To provide luxurious pension payments was never the aim of the state pension.”

Whether the new state pension can really be described as a “comfortable minimum” turns out to be a matter of opinion. Dr Ros Altmann, who was brought into government in April 2015 to work on pensions policy, is the UK government’s former older workers’ champion and a governor of the Pensions Policy Institute. When I relayed Field’s comments to her, she was left briefly speechless. Then she managed a “wow”. “Did he really say that? Would he be happy to live on just over £8,000 a year?” she asked, finally.

Tom McPhail, head of retirement policy at financial advisers Hargreaves Lansdown, is clear that the new state pension has not been set at a high-enough level to guarantee a dignified older age to those who have no other income. “How sufficient is the new state pension? That’s an easy one to answer: It’s not,” he said.

Field makes the assumption that people have enough additional private financial ballast to bolster their state pensions. But the reality is that many people have neither savings – nearly a third of all households would struggle to pay an unexpected £500 bill – nor sufficient private pension provision to bring their state pension entitlement up to a level to ensure a comfortable retirement by most people’s understanding of the term. In fact, savings are the great dividing line in retirement, and the scale of the so-called “pension gap” – the gap between what your pension pot will pay out and the amount you need to live comfortably in older age – is shocking.

Three in 10 Britons aged 55-64 do not have any pension savings at all. Almost half of those in their 30s and 40s are not saving adequately or at all. In part, that is because we underestimate the amount of money we need to save. According to research by Saga earlier this month, four in 10 of those aged over 40 have no idea of the cost of even a basic lifestyle in retirement. When it came to understanding the size of the total pension pot they would need to fund retirement, over 80% admitted they had no idea how big this would need to be.

Retirement is an ancient concept. It caused one of the worst military disasters ever faced by the Roman empire when, in AD14, the imperial power increased the retirement age and decreased the pensions of its legionaries, causing mutiny in Pannonia and Germany. The ringleaders were rounded up and disposed of, but the institution remains so highly prized that any threat to its continued existence is liable to cause mutiny. “Retirement has been stolen. You can pay in as much as you like. They will never pay back. Time for a grey revolution,” one reader emailed.

It was in 1881 that the German chancellor, Otto von Bismarck, made a radical speech to the Reichstag, calling for government-run financial support for those aged over 70 who were “disabled from work by age and invalidity”.

Roger Hall in Porlock Bay, Somerset. Photograph: Sam Frost for the Guardian

The scheme wasn’t the socialist ideal it is sometimes assumed to be: Bismarck was actually advocating a disability pension, not a retirement pension as we understand it today. Besides, the retirement age he recommended just about aligned with average life expectancy in Germany at that time. Bismarck did, however, have a further vision that was genuinely too radical for his era: he proposed a pension that could be drawn at any age, if the contributor was judged unfit for work. Those drawing it earlier would receive a lower amount.

This notion is surfacing again in various forms. The New Economics Foundation isarguing for a shorter working week, via a “slow retirement”, in which employees give up an hour of work per week every year from the age of 35. The idea is that older workers will release more of their work time to younger ones, which will allow a steady handover of retained wisdom. A universal basic income, whereby everyone receives a set sum from the state each year, regardless of how much they do or don’t work, might have a similar effect, enabling people to move to part-time work as they age.

Widespread poverty among the over-65s led to the 1946 National Insurance Act, which introduced the first contributory, flat-rate pension in the UK for women of 60 and men of 65. At first, pension rates were low and most pensioners did not have enough to get by. But by the late 1970s, the value of the state pension rose and an increasing number of people – mainly men – were able to benefit from occupational pension schemes. By 1967, more than 8 million employees working for private companies were entitled to a final-salary pension, along with 4 million state workers. In 1978, the Labour government introduced a fully fledged “earnings-linked” state top-up system for those without access to a company scheme.

With pension payments now at a rate that enabled older people to stop work without risking penury, older men (and to a lesser extent older women) began to enjoy a “third age”, which fell between the end of work and the start of old age. In 1970, the employment rate for men aged 60-64 was 81%; by 1985 it had fallen to 49.7%.

Access to a comfortable old age is a powerful political idea. John Macnicol, a visiting professor at the London School of Economics and author of Neoliberalising Old Age, believes that when jobs were needed for younger men after the second world war, a “socially elegant mythology” was created in which retirement was a time for older workers to kick back and relax.

He believes that in the 1990s, however, the narrative was cynically changed and the image of pensioners was deliberately altered: from being poor, frail, dependent and deserving, to well off, hedonistic, politically powerful and selfish. The notion of “the prosperous pensioner was constructed in the face of evidence that showed exactly the opposite to be the case”, he said, “so that the right to retirement [could be] undermined: more coercive working practices, forcing older people to stay in employment, could be presented as providing new ‘opportunities’, removing barriers to working, bestowing greater inclusion and even achieving upward social mobility”.

This change in attitude towards pensioners helped the government bring in a hike in retirement age. In 1995, the Conservative government under John Major announced a steady increase from 60 to 65 in the state pension age for women, to come in between April 2010 and April 2020. Most agreed that equalising the state pension age was fair enough. What they objected to is that the government waited until 2009 – a year before the increases were set to begin – to start contacting those affected, leaving thousands of women without time to rearrange their finances or adjust their employment plans to fill the gaping hole in their income.

Then, in 2011 – when the state pension age for women had risen to 63 – the coalition government accelerated the timetable: the state pension age for women will now reach 65 in November 2018, at which point it will rise alongside men’s: to 66 by 2020 and to 67 by 2028.

When she retired from the ministry of work and pensions in 2016, Ros Altmann stated that she was “not convinced the government had adequately addressed the hardship facing women who have had their state pension age increased at short notice”.

After surviving cancer at 52, Jackie Harrison, now 62, looked over her savings and decided she could just about afford to take early retirement. “I had achieved 36 years of national insurance contributions,” she said. “I used to phone the Department for Work and Pensions every year to ensure that I had worked enough to get my full pension at 60.”

Then she was told her personal pension age was increasing from 60 to 63 years and six months. “I wasn’t eligible for any benefits because of my partner’s pension, but I could nevertheless still just about manage until the new state retirement age,” she said. But when she was 58, the goalposts moved again – this time to 66. “I’d been out of the workplace for so long that I didn’t have a hope of being able to get back into it,” she said. “But nor did it give me enough time to make other financial arrangements.”

Harrison made the agonising decision to raise money by selling her family home and moving to a different city, where she could live more cheaply. Her decisions had heavy implications for the rest of her family – and the state. When she moved, she left behind a vulnerable adult daughter and baby grandchild and octogenarian parents.

“This is not the retirement I had planned at all,” Harrison told me. “I had loads of savings once, but now I live in a constant state of worry due to financial pressures. It seems so unfair when I have worked all my life and planned for my retirement. I just don’t know how I am going to manage for another four years”. Women born in the 1950s are already living in their age of no retirement.

In 2006, it became legal for employers to force their workers to retire at the age of 65. A campaign led by Age Concern and Help the Aged was swift and effective in its argument that the new default retirement age law broke EU rules and gave employers too much leeway to justify direct discrimination on the grounds of age. On 1 October 2011, the law was overturned.

Since then, Britain’s workforce has greyed almost before our eyes: in the last 15 years, the number of working people aged 50-64 has increased by 60% to 8 million (far greater than the increase in the population of people over 50). The proportion of people aged 70-74 in employment, meanwhile, has almost doubled in the past 10 years. This trend will continue. By 2020, one-third of the workforce will be over 50.

A worker at Steelite International ceramics in Stoke-on-Trent. Photograph: Christopher Thomond for the Guardian

The proportional increase may be substantial, but it charts growth from a low level. In empirical terms, the impact is less positive: almost one-third of people in the UK aged 50-64 are not working. In fact, a greater number are becoming jobless than finding employment: almost 40% of employment and support allowance claimants are over 50, an indication that many older people are unable to easily find new and sustainable work.

This is unsustainable: by 2020, an estimated 12.5m jobs will become vacant as a result of older people leaving the workforce. Yet there will only be 7 million younger people to fill them. If we can no longer rely on immigration to fill the gaps, employers will have to shed their prejudices, workplaces will have to be adapted, and social services will have to step in to provide the care that ageing people can no longer give their grandchildren, ageing spouses or parents if they remain in the workforce.


Forcing older people to work longer if they cannot easily do so can cause more harm than good

But forcing older people to work longer if they cannot easily do so can cause more harm than good. Prof Debora Price, director of the Manchester Institute for Collaborative Research on Ageing, told me: “There is evidence to suggest that opportunities for people to work beyond state pension age might well be making inequalities worse, since those able to work into later life tend to be men who are highly educated and have been in higher-paid jobs.”

One answer is to return to Bismarck’s original plan, whereby the state pension can be accessed early by anyone who chooses to collect a smaller pension sum at an age lower than the state retirement age, perhaps because of poor health or other commitments.

This option, however, was rejected last week by John Cridland, the former head of the Confederation of British Industry’s business lobby group, who was appointed by the government in March 2016 to help cut the UK’s £100bn a year pension costs by reviewing the state pension age.

Instead, Cridland has recommended that the state pension age should rise from 67 to 68 by 2039, seven years earlier than currently timetabled. This will push the state retirement age back for a year for anyone in their early 40s. Cridland has rejected calls for early access to the state pension for those in poor health, but has left the door open for additional means-tested support to be made available one year before state pension age for those unable to work owing to ill health or caring responsibilities.

In spite of their anxieties about money, one of the things I have been most struck by, in my many conversations with older readers, is the pleasure they take in life.

One grandmother told me: “Last week, I swept across a crowded pub to pick up a raffle prize … with my dress tucked into my knickers! A few years ago I would have been mortified. Not any more. Told ’em they were lucky it was cold and I had knickers on!”

Monica Hartwell, 69, is part of the team at the volunteer-run Regal theatre in Minehead, as well as the film society and the museum. “The joy of getting older is much greater self-confidence,” she told me. “It’s the loss of angst about what people think of you: the size of your bum or whether others are judging you correctly. It’s not an arrogance, but you know who you are when you’re older and all those roles you played to fit in when you were younger are irrelevant.”

  Women in Ilkley, West Yorkshire, discuss retirement. Photograph: Christopher Thomond for the Guardian

The data bears out these experiences: 65 to 79 is the happiest age group for adults, according to the Office for National Statistics. Recently, a report claimed that women in their 80s have more enjoyable sex than those up to 30 years younger. Other research has found that 75% of those aged 50 and over are less bothered about what people think of them and 61% enjoy life more than when they were younger.

So what is the secret to a successful retirement? Private companies run courses to help those on the verge of retirement plan for changes in income, time and relationships. I have spoken to those running such courses, as well as those who have retired. The consensus is that there are five pillars, all of which rest on the “money bit” – the basic level of financial security without which later life is hard. Once that foundation is in place, retirees can build up the second pillar: a social network to replace their former work community. The third pillar is having purpose and challenging one’s mind. Fourth is ongoing personal development – exploring, questioning and learning are an important part of what makes us human; this should never stop, I was told. The fifth and final pillar is having fun.

I tried explaining final-salary pensions to a 20-year-old recently. They looked at me quizzically, as though I was telling them that I had seen a unicorn. When that same 20-year-old, however, tries to explain the traditional concept of retirement to their own children, they might well be met with the same level of incomprehension.

For their children, life might well be more like the joke that Ali Seamer emailed to me during a recent Q&A I ran with readers as part of my investigation into what retirement means today: “I’m going to have to work up to 6pm on the day of my funeral just to be able to afford the coffin,” he said.

In examining the reality of this new age of no retirement, I have become aware of two pitfalls undermining constructive debate. The first is the prejudice that an ageing population will place a huge burden on society.

This is refuted by numerous studies: the volunteer charity WRVS has done the most work to quantify the economic role played by older generations. Taking together the tax payments, spending power, caring and volunteer efforts of people aged 65-plus, it calculates that they contribute almost £40bn more to the UK economy than they receive in state pensions, welfare and health services.

The research suggests that this benefit to the economy will increase in coming years as increasing numbers of baby-boomers enter retirement. By 2030, it projects that the net contribution of older people will be worth some £75bn.

Older people’s contribution to society is not just economic. An ICM poll for the WRVS study found that 65% of older people say they regularly help out elderly neighbours; they are the most likely of all adult age groups to do so.

The second pitfall is the conflict between generations that can be caused by the issue of retirement. The financial problems of the young have been blamed on baby boomers. But the truth is that the UK pension languishes far below that which is provided in most developed countries. And this contributory, taxed income – pensioners pay tax just like anyone else – is all that many old people have to live on.

Nearly 2 million of those aged 55-64 do not have any private pension savings and despite the commonly held belief that older people are all mortgage-free, fewer than 48% of those aged 55-64 own their own homes outright and nearly a quarter are still renting. It is true that some have benefitted greatly from rises in house prices, but the cost of lending was high – often 10% or more – during the 1970s and 1980s. One in 10 of those aged 65 and over still have a mortgage.

For all the recent talk of the average pensioner household being £20 a week better off than working households, the truth is that many are actually working to supplement their income. Still, to people just entering the workforce, the lives of today’s pensioners look impossibly privileged.

Rachael Ingram sums it up. At 19, working full-time and studying for an Open University degree, she is already putting 10% of her income aside for her pension. “I shouldn’t be worrying about saving for my pension at my age,” she told me. “I’m saving money that could go towards a deposit for my first house – I’m currently renting a flat in Liverpool – or out socialising. But I have no faith in government or the state pension. There will be no one to look after me when I’m old.”

We need the state now more than ever. But our belief in it has gone

Aditya Chakrabortty in The Guardian



 

Illustration by Nicola Jennings


I left the Royal Court theatre a few days ago, feeling as though the writer had been rifling through my and other reporters’ notebooks. In Wish List, Katherine Soper has pinned down a theme central to today’s politics – but one I’ve yet to see in print or hear from an MP. To grasp it is to understand much of what drives support for both Brexit and Trump – and just why this is such a hostile climate for the left, be it in the form of Ed Miliband or Jeremy Corbyn, Bernie Sanders or Hillary Clinton.

Zero-hours workers '£1,000 worse off a year' than employees



At the centre of the play is a 19-year-old whose life is already over. Tamsin Carmody’s mother has died, leaving her in charge of the family. That means looking after her brother, Dean, who has been almost broken by poor mental health. When things get too much, he’ll press his hand on to a burning hob.

To scrape by, Tamsin works on zero hours in a giant distribution warehouse, packing strawberry lube, Meat Loaf albums, bottles of gin. The grim details of how the 21st-century British labourer has been reduced to cheap commodity are all here: the work boots that leave Tamsin’s feet clenched balls of pain, the countless paper cuts from folding cardboard that never get time to heal, the pleading for more work each morning. Some of this derives from Soper’s own experience. The 25-year-old has done her own zero-hours stint in a packing plant where, after calling in sick for a shift, she turned up the next day only to be ordered home: she had already been replaced.

Then there’s Dean. The government reckons he’s fit for work, despite his inability to face strangers or venture out in daylight. He loses his disability benefits, and has to enact the farce of assembling a CV and applying over and over again for jobs he won’t get and could never hold down.

And here is where a play does what a newspaper can’t and a politician won’t: the siblings’ lives are laid side by side, and the state is revealed to be just as callous, unanswerable and punitive as the employer.

FacebookTwitterPinterest Erin Doherty (Tamsin Carmody) and Joseph Quinn (Dean Carmody) in Wish List. Photograph: Tristram Kenton for the Guardian

Tamsin can’t meet her impossible targets of packing 400 items an hour; Dean is in no state to fill in all his job applications. Tamsin’s boss shrugs that he’s following orders: “They just get the numbers in the red and they work out how to put them in the black.” Dean’s health assessor and welfare adviser are in the pay of a government following a busted austerity strategy that relies on cutting off money to the poor.

Both have to struggle through tick-boxes, euphemistic nonsense (Tamsin’s warehouse is a “fulfilment centre”; Dean’s disabilities make him “fit for work”) and a system that grabs a lot while giving a pittance.

We’re often told that the state and the market have entirely different roles. But meet any number of the people paying the price for Britain’s crash, and you’ll see that they play almost identical parts using similar language and similar bureaucracy. And far from protecting low-paid workers from the depredations of the market, the state wants to hurl more people into it under the pretence that they are shirkers.

None of this fits with how social democrats view the state. Having attended my fair share of Labour and other leftwing political meetings, I know that a staple feature is that some grey-haired man in a jumper will leap up towards the end and launch into a good-hearted defence of the state. Public investment, social security, industrial strategy: all will circle back to the state; all will be met with murmurs of approval.


This has happened without the pundits and politicians noticing

And all are a million miles away from the experiences I regularly hear while reporting. I think about Lisa Chapman in Northamptonshire frantically searching the internet in the small hours to protect the benefits of her husband, who has Parkinson’s. A few days after my trip to the theatre I saw a presentation from the head of a local Citizens Advice. One of the PowerPoint slides read: “For some people, there is no safety net any more.” There was a time, she explained, when if someone walked in penniless she could get on the blower and shout, and scream and get them some money from somewhere. Now? That was almost impossible.

And I think of the valleys of south Wales, and the replies I got when asking what would make things better in one of the poorest parts of western Europe. No one mentioned the government, either in Cardiff or in Westminster. When I mentioned the G-word – in this place, where Thatcher shut the mines while Labour just relied on its voters to carry on being good little sheep – the response was usually laughter.

At the end of 2015, a team of academics held a series of two-day discussions with small groups of members of the public across Europe. They were asked only one big question: what should the government do for your children’s generation? Of all the countries, the British were easily the most pessimistic about what could be done – behind even Slovenia.

The British liked the NHS and pensions, but thought both would be gone in a generation. They didn’t talk about the good things that could be done by government. Trade unions came up just once in the entire two days. “I found it quite shocking,” recalls Peter Taylor-Gooby, of the University of Kent. “Of all the groups we interviewed, the British had this mood of resigned, reluctant individualism.”

Thirty years ago, Ronald Reagan claimed the nine most terrifying in the English language were: “I’m from the government and I’m here to help.” He said it was a joke; it turned out to be a prophecy. Three decades of both right and left privatising, outsourcing and deregulating have shrunk the public imagination about what their representatives in government can achieve. Put that alongside the shattering of the working class, the smashing of trade unions, and the diminishment of so many other social institutions.

The need for the state and collective action hasn’t diminished, but the public belief in it has gone. The state is now either invisible or hostile. This has happened without the pundits and politicians noticing, but its consequences could shape politics for decades.

After Dean has received his latest brown envelope, Tamsin turns to him and begins a vow. “We’re gonna make it without them. OK? Fuck them … we can do this ourselves. We can – I can work, and …” Her voice breaks. “This isn’t fucking fair. I can’t keep doing this. I can’t.

“I’m so fucking tired.”