Tuesday, March 28, 2006

Pension Chaos

Britain is on strike - 80,000 public sector workers walked off the job today in a dispute over pensions. The argument is not about the size of the pension, but about when a person is entitled to it. Under the existing rules, a person who has worked for the equivalent of 35 years (the formulae is that a persons actual age plus length of service must be 85 or higher) can retire on a full, index linked final salary pension. The government wants to scrap this rule, and require a person to work to 65 (which may be changed to 70) before being entitled to a pension.

It is an interesting development. A strike over the right not to work.

The context is simple. Britain's demographics are the same as Canada's - the boomers are approaching retirement and many are eligible to pensions under this rule and many of them are smart enough to say that not working is likely to be more fun than working. The government, however, have a major problem. Unfunded public sector pension liabilities are £960b (according to Watson Wyatt) and will soon reach one trillion pounds. This is equal to £40,000 per household in Britain and is larger than the public sector debt in the UK.

The private sector fairs not much better. Many used to have final salary pension benefits, but most have abandoned these for new entrants into their firms. Over half of the working population in the private sector in the UK have no pension arrangements - they are either earning too little or have opted out. Of those in schemes, 40% have opted for the minimum scheme, which will give them just £31 a week on retirement.

Striking draws attention to the pension crisis in Britain. What will it take for Canadian's to wake up to the fact that the situation here is not much different?

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