Pensions bubble about to burst

I recently came across a report from the European Commission that suggests we are all clearly doomed in the not too distant future.

It would appear that the fun bunch who hang out at the Berlaymont building in Brussels have worked out that in no time at all there will not be sufficient people working to pay for the goods and services that governments currently provide or even pay for basic pensions for the old.

According to these guys the percentage of pensioners in the population is set to double by 2050

More worryingly consider this.

In the 1950s there were seven workers toiling away for every pensioner sitting at home with his feet up.

But by 2050 there will just be 1.3 workers for every pensioner.

And what makes this even more of a crisis is that the 1.3 workers will also have to fund all the services for children, wives who have decided to break from work when their children are young and people who through no fault of their own or through choice are not in employment.

Historically, certainly in the UK, state pensions were funded from insurance contributions being made by the working population which was then handed on to those who had reached retirement age.

At seven workers to one this worked quite well and since the 1950s the baby boomers of the post-war world ensured that the workforce continued to expand which allowed the state to pay reasonable pensions which were once linked roughly to the cost of living index.

Now while this is a major problem for the UK there are other countries in the EU, France and Italy come to mind, that allow state employees to retire on a healthy pension at ridiculously young ages.

Of course it is also partly the fault of pensioners for refusing to pop their clogs for a lot more years than the actuarial profession predicted.

While the state pension dilemma seems insoluble, private pensions and company pensions are also in crisis.

The final salary pension schemes worked perfectly well when we had bouts of high inflation which reduced the cost of annuities.

It also helped in that with high inflation the real value of the pension fell quite quickly, unless it was index-linked, so the cost of providing it also fell in real terms.

But the days of the baby boomers are past, childbirth rates have been falling for years and the pensioner population is growing dramatically ahead of the workforce.

Unless we abandon universal tertiary education and get back to sending our kids down the pits or off to the mill before they become teenagers then we certainly appear to be doomed.

Canny Scots...

Most people have never heard of a Scotsman called John Shepherd-Barron who died the other day but he revolutionised the banking system as we know way back in the 1960s.

In those days retail banking was an oxymoron because the one thing banks did not really try to do then was sell things.

Far from being retailers, bank managers were avuncular characters who promoted thrift and discouraged customers from withdrawing cash from their accounts, far less offer to lend.

They partly achieved this by making sure that it was practically impossible for anyone who had a job to get access to their bank branches.

Banks in those days only functioned on weekdays, opened after everyone had gone to work and closed promptly for a long lunch to discourage profligacy by denying customers access to their accounts.

They also made a point of closing before any other businesses to keep temptation away from their account holders.

This proved a problem for Mr Shepherd-Barron who was continually turning up at his bank branch to find it closed.

Then he came up with an incredible idea while purchasing some chocolate from a vending machine.

He worked out that if you could vend chocolate there is no way, with a few safety precautions, that you could not vend cash.

So he invented the automatic teller machine, now known as an ATM and the first one was installed in a Barclays bank in London in 1967.

There are now more than 1.7 million ATMs across the globe and not only were they invented by a Scotsman but most of the research that made them the modern marvels they are today was carried out by a US company called NCR at its plant in Dundee, Scotland.

Interestingly, before NCR upped sticks and moved production to somewhere cheaper elsewhere, the Dundee plant produced about one-third of all these machines.

Banks tend to have far more civilised opening hours these days, but if anything we need ATMs more than ever.

The banking system now appears to only have managers who speak to extremely rich corporate clients while the rest of us have either to use the ATM or stand in long queues for up to an hour to make a deposit or withdrawal.

Sidelined...

I have always taken the view that economists were invented to give credence to weather forecasters.

I have just read a report by PricewaterhouseCoopers (PwC), entitled, What can econometrics tell us about World Cup performance?

Well not a lot I would suggest.

Along with everyone else they fancy Brazil as favourites, point out that England will be lucky to get to the quarter-final and that African teams will have an advantage because they are playing at home.

In the entire history of the World Cup only Brazil has ever won when playing away from their own continent.

They also point out that rich countries do not do better than poor countries and small countries regularly beat countries with larger populations.

Which is something that anyone in any hostelries around the world could have come up with without trying to claim these conclusions to the dismal science.

I am not sure how well England will perform but they most certainly will not win the trophy.

The only uncertainty is when they take to the field against the US is how long it will take the English commentator to mention their lone victory on home soil in 1966. That will probably be before the team is even out of the tunnel. - ARTHUR MACDONALD