Why your pension will evaporate

20 February 2013

Norman Pagett writes:

A pension is a debt, and like all debts, it can only be paid from future prosperity.
Unfortunately there isn’t any, that’s why pensions are unaffordable. We’re not making enough profits to pay them, nor will we be able to do so. Current pensions are supported on the momentum of past prosperity, there will be no future wealth to carry them on.
But why not? We’ve always made profit in the past, why can’t it go on?
Because we created that past on cheap energy, coal oil and gas. Without it we couldn’t have built our cities, roads, railways, factories, hospitals or boosted our population to 7 billion. We thought all that was GDP, but it wasn’t, it was fuelburning, and our employment, in fundamental terms, was feeding the machines. Our lives depended on industry running faster to produce more.
Not very elevating to our concept of human genius, but there it is. The faster we used energy, the more ‘growth’ we had; but only as long as we fed more (cheap) energy into the system. It paid our wages, profits, and secured our pensions on the permanent promise of more.
With oil at around $35 a barrel it was infinite utopia, but now at around $100, it’s just too expensive to keep our system going let alone pay the future debt of an inflating pension system.
As oil gets more expensive, so our living standards will drop pro-rata
We have an ageing population that’s outgrown its support. When the UK pension system was introduced in 1908, only men aged 70 were entitled to a state pension and there were 28 workers supporting each pensioner who was lucky to reach that age. Now there’s 5, supporting pensioners likely to live to 100. As our median age rises, the ratio of support workers will drop.
That is the arithmetic of a rather bleak future.