Pensions - the Need for a New Philosophy (Stuart Nicolson)
It affects us all, whether as pensioners now or soon, or as taxpayers looking forward to financial security at the end of our working lives. It is the future of our children one day. However, it is becoming increasingly clear that there are fundamental problems in the system and they are not easily solvable. This article will look at the reasons for these problems, focussing on the socio-economic philosophy that is widespread today and it will offer reasons for rethinking both the predominant philosophy and the manner in which the older generations are financially supported.
It is a more immediate problem in other countries than it is in the Czech Republic, as the “baby-boomer” generation reaches retirement age and looks forward to many years of well-earned pension payments. Taxes have been paid and many people have invested in pension plans. It is time for the state to return some of that which was paid earlier. However, there is a growing imbalance and it has been recognised for years: the same generation did not produce enough children who would grow up and become the next generation of taxpayers, who would basically pay for their parents retirement lifestyles. Although this is not such an acute problem yet in the Czech Republic, with a smaller “baby-boom” that came later, in the 1970s, the key issue of unsustainability still exists and is growing.
Simply stated, there have not been enough children born over the last few decades to maintain the state pension system as it has been. The Czech Republic's average range of 1.1 – 2.0 children per female since the 1980s clearly points to the issue, being below the widely accepted average of 2.1 needed to sustain a population level. This means that fewer people are, and will be, paying for the increased length of retirement that comes with the higher standard of living and improvements in healthcare in Europe, and much of the world as a whole. There are countries where this issue has been temporarily masked, such as Britain's current average of around 2.0; however, this UK rise has been primarily caused by economic migration, particularly Poles, who stay for a few years then return to their origins – not all the children are staying in the UK and growing up to be taxpayers.
Where the coming crisis is more immediate, some basic measures have already been introduced. The crudest is an increase in taxes. The cruellest is extending the working-life of 50-somethings (like a marathon runner near the end being told to go another 5km). The most disturbing is the increasingly-accepted idea in society of euthanasia.
However, while these variously-utilitarian answers are debated, the need for more creative and alternative solutions is now being considered. The British Conservative Party is developing a policy of training pensioners for teaching in the classroom, for example. Unsurprisingly, the response to this news online, in the comments section, was not generally welcoming (http://www.telegraph.co.uk/news/politics/conservative/10918509/Tory-plans-for-retired-pensioners-to-retrain-as-teachers.html). The key issues for complaint must be addressed: pensioners have earned the right to 'enjoy' their retirement and older people are unable to work as much as they did in their thirties and forties.
So the key issues regarding pensions are a conflict of interests. The first group is the older workers and pensioners who have worked in a fairly stable and structured system of work-full-time-until-you-retire. They have paid a significant amount of money into a state system that promised to reward them but it cannot sustain the present statistical imbalance. The second group is the younger workers and the children who will fully join the economy soon. These will be required to work more for less income in order to pay for the lifestyles promised to the older generations. The danger is that the well-populated older generations, if upset with new developments, could use their democratic power to force through economic policies that could even lead to a modern version of “bread-and-circuses”; but if the younger generations rebel by avoiding their economic duties, a large grey/black market could develop as taxable jobs become financially pointless and alternative systems begin to undermine state systems. Although these are extreme possibilities, they are not impossible.
The growing use of private pensions is, of course, part of the solution. These remove the financial burden from the state (to some extent) and allow those who invest more money to receive more money. However, the vast majority still expect their state-supplied income. And there are very many who need their state pension as they have little or no private pension income. The very real danger of over-reliance on private pensions is that they depend on two important factors: the investment scheme must be implemented properly, avoiding fraudulent or careless actions; and the economy must have stable growth for investments to guarantee an income (in the macro sense). Obviously, as events have shown, we cannot depend on either of these fully for all investors/pensioners-to-be. We need solutions that are wide-ranging and suit all possible scenarios.
In economic terms, the problem is that there is an increasing lack of necessary financial transfer between the younger and older generations as fewer young must pay for a greater number of the old. This has been caused by the older generations investing in the state in monetary terms (taxation) but not in demographic terms (sufficient birth rate). Whether the latter has been for financial reasons or due to lifestyle preference, or even for ideological purposes, it is clear that there is an imbalance. Regardless of social or political background amongst the nations, the pension crisis is real and growing. It is exacerbated by the system having been designed before improvements in healthcare and living conditions, which have considerably lengthened the average life-span. To be blunt, many older people have invested only partly in a system that promised them that larger taxes now means pensions later. Their reliance on the state is the problem that must be solved. In real terms, a change of philosophy is needed.
The solution is not simply to postpone retirement for another few years, in line with increased life expectancy as the problem is more fundamental than that. It is important to recognise the current working practice of the vast majority of people in society is the black-and-white nature of work participation. The day before a specific date, Mr Smith is working full time, as he did on all of those previous days, weeks, months and years. The following day, and for the rest of his life, Mr Smith does nothing. It is called “retirement” and it is the complete opposite of his life before. In the extreme, it can even be fatal: in the UK, it has been known for schoolteachers, amongst others, to die within six months of retirement due to the intensity of the normal day being replaced by, simply, nothing. However, for everyone, the realisation of becoming suddenly economically worthless, and indeed a burden on the state, can only have a negative impact on man's dignity at the least. While the Compendium of the Social Doctrine of the Church (section 289) focuses upon the deterioration upon the person that unemployment has, the previous section's statement - 'Work is a good belonging to all people and must be made available to all who are capable of engaging in it.' (Compendium, 288) – can easily be applied to those who are over an arbitrarily-chosen retirement age. One does not simply become incapable of work once retired. However, society's message to many pensioners is, once the novelty of an everlasting holiday has disappeared, that “retirement” means a life of dependence upon the Social Assistance State, a system that the Church strongly warns against (Compendium, 187). Therefore, a system that is not so abrupt and final, one that promotes the dignity of the older generations, needs to be developed.
Several times after Easter 2014, Pope Francis made statements regarding social doctrine. He encapsulated the problem in a media conference: 'A genuine economic system is centred on man and woman, the human person. Today money is at the centre. To maintain itself, its equilibrium, this system has to adopt certain “throwaway” measures. So you throw away children – the birth rate in Europe is not very high! [...] The elderly are discarded: old people are not useful; in the present situation, at this moment, we visit them because they are retired and needy, but it is a matter of the present situation.' (http://w2.vatican.va/content/francesco/en/speeches/2014/may/ documents/papa-francesco_20140526_terra-santa-conferenza-stampa.html) He pinpoints the fact that the birth rate suffers at the hands of short-term economics that focus on profit and not on people, with children seen as a burden while the elderly are increasingly vulnerable as they have seemingly nothing economic to offer. However, this lack of economic contribution reflects heavily on the current system, which encourages pensioners not to work, and not upon every pensioner.
Clearly, the economic culture, especially since the current economic crisis began, is rooted firmly in Individualism and not in the desire to work together for the good of society. The Pope, speaking early in his pontificate, stated that 'Hence the need to rethink solidarity no longer as simply assistance for the poorest, but as a global rethinking of the whole system, as a quest for ways to reform it… Solidarity is not an additional attitude, it is not a form of social alms-giving but, rather, a social value; and it asks us for its citizenship?' (http://www.centesimusannus.org/media/2aqie1398173589.pdf) Here, he not only calls for a new economic philosophy in society but also recognises that the Social Assistance State cannot be used as a means of granting the jobless basic access to the economy in order to avoid the problems of extreme poverty while ignoring the dignity of the person. Throwing a little bread at the poor does not help the poor other than to postpone their hunger pangs. I suggest that this can be extended to the significant number of older people who are removed from their jobs and fed a pension, which does take personal dignity into account; further, can the economy afford the actual cost of rejecting experienced and often trusted workers to whom the economy is struggling to pay pensions?
Therefore, there are two intertwined issues here: personal dignity and the common good. Firstly, the Pope, speaking to the UN, reminds us of human dignity: 'Today, in concrete terms, an awareness of the dignity of each of our brothers and sisters whose life is sacred and inviolable from conception to natural death must lead us to share with complete freedom the goods which God’s providence has placed in our hands, material goods but also intellectual and spiritual ones, and to give back generously and lavishly whatever we may have earlier unjustly refused to others.' (http://w2.vatican.va/content/francesco/en/speeches/2014/may/documents/papa-francesco_20140509_consiglio-nazioni-unite.html) This idea of human dignity is not new. His consistency with Church teachings is found in various documents, including Leo XIII's personalism in Rerum Novarum, which held that dignity included participation in contributing to the greater good. The development of the common good, through Subsidiarity, was Pius XI's message in Quadragesimo Anno. John Paul II added, in several encyclicals, the principle of Solidarity, pulling together the individual and wider society. Finally, Benedict XVI's pontificate included the creation of the aforementioned Compendium of Social Doctrine, displaying the consistent teaching of the Church as it developed and unfolded. Pope Francis, in describing the Christian business owner, stated that 'the Gospel requires him to make the human person and the common good his first priority.' (http://www.zenit.org/en/articles/pope-s-message-to-business-leaders-remember-ethical-foundations) The consistent theme of the person being most important in economic matters has therefore been developed through more than a century of Church teachings.
The Compendium devotes a subsection to 'The Dignity of Work', identifying the subjective aspect of work. This, being more important than the objective (purely) economic, 'gives to work its particular dignity' (Compendium, 271). A worker does not only give economically, but also with personal involvement. This participation has personal worth, a value that is measured also in self-esteem and dignity – a person, not a robot. The social aspect of work, in giving and participating in society is also examined, as well as work being 'an obligation, that is to say, a duty on the part of man' (Compendium, 274). This relates the worker to his family, society and humanity as a whole: man joins in with others to build something greater, reflecting God's creative nature (Compendium, 275). Indeed, the Compendium (281) takes this a step further: 'On the basis of his work each person is fully entitled to consider himself a part-owner of the great workbench where he is working with everyone else.' This increased participation is possible by transcending the normal boundaries 'when workers participate in ownership, management and profits.' (Compendium, 281) This development of responsibility, and possibly authority, is one that is commensurate with greater work experience, longer life experience and a more circumspect outlook. Therefore the idea of granting older workers the opportunity for developing responsibility and authority is one that works in accord with increased human dignity and also makes economic sense.
The common good is fundamental to the working of a healthy and vital community. It encompasses all people 'if it is to attain its fullest meaning, stems from the dignity, unity and equality of all people.' (Compendium, 164) Thus the integral link between human dignity and the common good is established and necessary. This is no optional feature but a primary component for 'the actions of a society attain their full stature when they bring about the common good. The common good, in fact, can be understood as the social and community dimension of the moral good.' Therefore, any group of people must focus upon the common good in order to flourish and be fulfilled in and of itself. This, obviously, requires the complete society to be included in this, as the Compendium explains: 'The common good therefore involves all members of society, no one is exempt from cooperating, according to each one's possibilities, in attaining it and developing it.' (167) However, the common good is not an end in itself but points to the 'universal common good of the whole of creation', reflecting man's role as steward of God's Creation. So, the human dignity of all is inextricably linked with the fullness of society being found in the common good, both of which are integral to the Christian vision.
However, these ideals have not been carried out in society, partly because of an imbalance between man and societal structures. While Individualism is now a common difficulty, the opposite problem of Collectivism has also in places focused society away from the common good. The idea of man serving the state, as in the wider community, is a noble one. However, when the state stops serving man, it becomes an inhuman system. The state is, simply, a conglomeration of authorities and responsibilities. It has no inherent value other than the good it can do for its members for 'the common good is the reason that the political authority exists' (Compendium, 168). The state must serve the humans who are connected to it and not vice versa. The state is simply a system of people working together; when the focus is on the state and not on the people then there is a fundamental problem.
The Church is clear regarding the interrelated spheres of morals and economics; as the economy is simply the use of resources, including humans, this is unsurprising. The Compendium (331) describes the relationship as 'an important reciprocity.' What can be absent in social science studies is that 'In the economic and social realms, too, the dignity and complete vocation of the human person and the welfare of society as a whole are to be respected and promoted. For man is the source, the centre, and the purpose of all economic and social life.' (Compendium, 331) As both society and the sphere of economics are simply the interactions of human with human, the common good must encompass this entirely and exclude no one (Compendium, 333). If there can be any “good”, the integral nature of moral considerations is non-negotiable. This applies to every scenario, from the macro-trend to the micro-example.
One such illustration, showing the idea of man as an economic unit being closely connected to dignity, is as follows. The interrelationship between man as person and man as economic unit can be seen in the important development in how charities have responded to famine in Africa over the last few decades. Firstly, they flooded the area with food but this action obviously had to be repeated again and again. Then they began to develop a basic infrastructure and finally educated the local people on how to become economically self-sufficient. The saying in English that encapsulates this is: “Give a man a fish and you feed him for a day; give him a fishing-rod and you feed him for life.” Not only is man then economically independent from financial handouts but his dignity and self-worth grows dramatically. By providing tools, resources and perhaps some training and opportunity, man is freed from being dependent upon handouts.
If we consider the worker transferred from a life of work and dignity to the retired person whose dignity rests upon memories of participation, an important step can be identified here. By providing opportunities and perhaps some training or capital, the retired worker can have access to the means of production in a variety of areas. Consider the example of an allotment, a “working garden”. A small parcel of fertile land, the tools necessary and training (if required) to start up an ongoing resource is possible. However, not every retired worker has access to such resources. The only free resource for the retired – time – is in abundance but the others are often unobtainable. By providing access, through minor and limited state intervention, the retired person who seeks purpose and economic participation will have a fishing rod and not just the fish in the guise of pension payments. The possibilities are wide-ranging: from a limited management role to mentoring younger workers and trainees; a small business in a field of interest or the tools to write articles or even a book. Suddenly, the British idea of retiring and becoming a teacher is no longer so unusual. Already in many countries, some retired people work voluntarily in a shop for a morning a week or are busy in a parish or social group. However, many more do not have the opportunity or the encouragement necessary to establish themselves in a role that is not as demanding as full-time work, or as independent as a gardener who sells produce at the local market or helps feed younger generations. Such a retired person not only retains dignity through participating economically but also in his role in developing the common good.
Such thoughts allows us to recall the activities of the elderly before the advent of the Social Assistance State. Without an abrupt end to working life, the moral preference was for work to be reduced appropriately, enabling participation to continue while taking into account health and energy factors. Surely a managed and gradual transformation from full-time worker to being part-time self-employed is preferable not only in terms of dignity and common good but also in purely economic terms. Those who can support themselves do not need a full pension to support them, although there must always be a safety net. Obviously, there must be a balance between what a person has contributed in taxes and even in children (birth rate) but these can be offset by later taxes being reduced in order to develop capital or seek training in a future enterprise. Therefore, someone in their fifties may choose to work only 50% of the time while training through a college to become a vegetable grower (from seeds and soil to basic accountancy and selling techniques). His tools and starting capital can come through a tax rebate or tax credits on his remaining income. Land is bought if possible, or leased until no longer required. Several years later, career retirement ensures plenty energy and enthusiasm is available in order to become established. By seventy, the enterprise is sold to someone ten years younger who wants to follow the same route. There remains a small mentoring role or practical set of tasks for the first person.
The transition to this being common would not be simple. Although the above is only a basic outline of an example, the development of human dignity, the common good and economic benefits – from personal to state – are apparent. However, it would be necessary to refocus society's members from looking forward to pension money to consider partial self-sufficiency or increased social participation, such as a charity worker, as something of value (as recognised in Compendium, 420). This would be a return to a pre- Social Assistance State philosophy, albeit with much improved healthcare and a limited financial safety net for those who cannot participate. There is clearly a need for a careful balance in managing the journey from pension-dependency to partial self-sufficiency but it is becoming clear that this, or similar developments, will be necessary to avoid graver problems.
To manage such a significant social transition in philosophies, the onus is on political authority to be wielded appropriately. The Compendium reminds us that 'Political authority is therefore necessary because of the responsibilities assigned to it' (393) and that 'Political authority must guarantee an ordered and upright community life without usurping the free activity of individuals and groups but disciplining and orienting this freedom, by respecting and defending the independence of the individual and social subjects, for the attainment of the common good' (394). Political authority is and must be a positive and irreplaceable component of civil life. Re-education of people in general is needed but only as a structure to implement new way of thinking – to be reduced then removed in order to develop a more responsible free-market economy. (Compendium, 187) Although the idea of the state “educating” its members can conjure up memories of ideology and propaganda, the end must inherently justify the means: by promoting the family as the most important economic and social unit, the focus on the state would automatically diminish as the family unit strengthens. This, in turn, develops that strongest educational foundation for man – the family setting – and establishes the worth and dignity of individuals, which then promotes the common good. Indeed, 'In the work of education, the family forms man in the fullness of his personal dignity according to all his dimensions, including the social dimension… By exercising its mission to educate, the family contributes to the common good and constitutes the first school of social virtue, which all societies need. In the family, persons are helped to grow in freedom and responsibility, indispensable prerequisites for any function in society. With education, certain fundamental values are communicated and assimilated.' (Compendium, 238) Indeed, the first step in re-educating people in order to bridge generational gaps is probably to promote the family unit as a very important factor in society. By bonding together people in other generations who are already known to each other, less-familiar people of different ages become less of a challenge. This could easily be integrated by promoting the idea of family businesses, which are managed by the older generation and the younger family members may help out part-time. This would develop the common good in a micro setting, which can develop into wider society.
However, the Church recognises that the solution is not, in terms of social science norms, particularly orthodox: 'No legislation, no system of rules or negotiation will ever succeed in persuading men and peoples to live in unity, brotherhood and peace; no line of reasoning will ever be able to surpass the appeal of love' (Compendium, 207). Before the secular economist's scorn can develop, the Compendium continues to explain in more concrete terms what the Church teaches. 'In this perspective love takes on the characteristic style of social and political charity: “Social charity makes us love the common good”, it makes us effectively seek the good of all people, considered not only as individuals or private persons but also in the social dimension that unites them.' (207) This shows how the virtue of love underpins the idea of charity, which is already present today to some extent. The truly beneficial role of the political sphere is then introduced: 'Social and political charity is not exhausted in relationships between individuals but spreads into the network formed by these relationships, which is precisely the social and political community; it intervenes in this context seeking the greatest good for the community in its entirety.' (Compendium, 208) By promoting this new social philosophy, where one cares for those around him and acts upon this, Solidary Humanism (Compendium, 7) can develop, true justice can occur and peace between the generations may be possible.
As the focus so far has been on the relationship between state and person, the idea of private pensions has not been brought in to the discussion with regards to a new socio-economic philosophy. They certainly have their place and the use of private pension investments are, as stated earlier, part of the solution. However, they cannot be held as the main solution for philosophical reasons also. They have financially-variable results: sometimes they are very profitable and sometimes they fail. This reflects their amoral – i.e., that moral considerations do not apply – and non-personalistic characteristics as they are merely a tool. Just as investors can act in a short-term, goal-oriented, profit-seeking manner, which is obviously both somewhat immoral and certainly short-sighted, we could perhaps liken them to the short-term parenting choices made by those who preferred not to invest demographically. In other words, it is a philosophy of “benefits now, pay later”. This series of attributes is not compatible directly with the Church's teachings, ignoring the personalistic aspect, and dignity in particular; private investments can certainly be an option within the solution but they are not the solution itself. To become more integral to the solution, it would be preferable to develop a more moral way of thinking in the investment markets. This is, of course, easier said than done.
This reminds us of the present developing situation. In the macro moral/economic sense, a balance of justice is needed between the current older generations that provided only one of two necessary factors for economic growth – taxes and birth rates – and the current economic reality of the failure to achieve sustainable growth. The earlier generations followed (and were rewarded by) a system of depopulation that has consequences now. The taxpayers of today and tomorrow cannot be held responsible for this. Neither group should be punished but both groups may feel punished depending upon how matters develop. The only way to avoid this is to educate everyone on the actual issues and promote a philosophy of Solidary Humanism, as evinced by the Church's Compendium of Social Doctrine. From a culture that has been either focused too heavily on Individualism or on (officially) Collectivism, it is time to refocus on the common good by considering others as well as the self. This is the key and necessary balance that underpins Heinrich Pesch's Solidarism, which is perhaps a solution that is worth exploring given today's economic issues (http://cssronline.org/CSSR/Archival/2009/Krason%20-%20Church%20&%20Public%20Affairs.pdf). Justice in this sense needs to be true justice, embracing all of the people involved and rooted in inter-generational respect and not 'a contractualistic vision of justice' (Compendium, 203).
The Church recognises that 'The proper reconciling of the particular goods of groups and those of individuals is, in fact, one of the most delicate tasks of public authority.' (Compendium, 169) In practical terms, all generations must be educated in the idea that an economy continues not only through short-term financial investments (taxes) but also in long-term demographic investments (children). How this is implemented is one of the most important questions that need to be answered over the next decade or two across many economies throughout the world. Some sooner than others.
A potential solution, and almost the last word here, comes from the Church, which sums up the message of this article: 'The relationship existing between the family and economic life is particularly significant. On one hand, in fact, the economy (“oiko-nomia”, household management) was born from domestic work. The home has been for a long time — and in many regions still is — a place of production and the centre of life. The dynamism of economic life, on the other hand, develops with the initiative of people and is carried out in the manner of concentric circles, in ever broader networks of production and exchange of goods and services that involves families in continuously increasing measure. The family, therefore, must rightfully be seen as an essential agent of economic life, guided not by the market mentality but by the logic of sharing and solidarity among generations.' (Compendium 248)
These words show how we can – and really must – reorient our philosophy regarding the economy and the people it really should serve, not only in respect to pensions but also in the wider relationships between the generations, both within families and society in general.