Breach of intergenerational social contract

In today's Financial Times Janan Ganesh says that the young should blame bad luck not politics for the fact that they will not have things as good as their parents' generation (Bad luck, not policy is the scourge of the young). This is a lazy piece of writing that seems to be a polemic against the old.

Besides ignoring important evidence that tends to contradict some of his claims (e.g. that the baby boomers were born at a time when government debt was three times what it is now, and that they paid higher taxes), he invokes a false social ontology of intergenerational conflict. It cannot be simply a distributional question of young versus old, as he describes, because the young will also one day become old themselves. So the young have an interest in ensuring good pensions.

What we are in fact witnessing are the consequences of a unilateral rewriting of the intergenerational social contract. The society in which the baby boomer generation has lived is one with a strong element of social solidarity, whereby each generation in work guarantees the welfare of its predecessor in retirement - in the knowledge that they themselves will receive equivalent support in their turn. This ‘pay-as-you-go’ social contract is being scrapped by the neoliberals (because “there is no such thing as society”) so the young generation will miss their turn. Instead they are being told they are in the market place where every individual is required to fund their own pensions from their own savings.

This has two unfortunate consequences for the young. First it is much more costly to provide adequate pensions and other welfare benefits individually in the market than collectively. For example it is known that money purchase DC pension schemes cost at least forty percent more than equivalent collective schemes. Second, it means that many of the transition generation are having to pay twice – for their own ‘pots’ as well as for the guarantees to the old.

But there has never been a collective decision to rewrite the social contract in this way. This is what the young should be angry about. It is deeply political but it is not the fault of the old.

Dennis Leech : 07 Jan 2014 17:36 |  Tags: Pensions |  Comments (0) |  Report a problem