Sturm und Drang in Europe Over Pension Cuts
According to "Europe Tries to Handle Political Fallout of Pension Cuts" by Carter Dougherty (New York Times, August 5, 2008), we learn that the "third rail of politics" is clearly a global pain point for legislators. Changes that include raising the retirement age (such as in Italy and Germany) or extending the service requirements for government workers (such as in France) could be figuratively lethal for those in power. Dougherty warns that European workers have cause to worry, stating that "Forty percent of Belgians over 75" will "live in poverty by 2016" according to official statistics.
The article describes the creation of the Pensioner Party by a disgruntled German retiree, now focused on electing candidates who will advocate for a "more generous pension system." Google lists a URL for "The Pensioners Party," a UK registered political party with stated objectives that include the removal of means testing, payment of higher benefits and various other assorted freebies. Milton Friedman is calling out to us - "There is no free lunch." National Public Radio reports that an Israeli Pensioners Party is "shaking up the balance of power after winning seven seats in the country's parliament." See "In Israel, Pensioners Party Surprises With Gains" by Eric Westervelt, April 2, 2006.
Unfortunately, the "graying" of global populations and financial reality make it extremely difficult to do anything but acknowledge that change is imminent. The recission of hard-fought reform to avoid public outcry and political fallout is only going to exacerbate an already serious situation. Numerous countries, especially those with entrenched state plans, are being squeezed due to dramatic demographic shifts and benefit largess. In response, countries such as Sweden and Poland are urging individuals to participate in employee-directed plans. Germany has offered a tax incentive for private savers. One would hope that retirees, counting on promises made and possibly facing limited work opportunities, will have "enough" to survive.
The political ramifications, in Europe, the United States and elsewhere, are huge. Do not be surprised if older voters are soon fighting at the ballot box with younger workers who feel the crush of large retirement plan IOUs. The sad truth is that real people are going to get hurt. That is why the crisis must be recognized and managed, sooner than later. Time is a luxury that few countries can afford.
Editor's Note: The American Association of Retired Persons (AARP) presents detailed information about retirement plan issues in a variety of countries. Click to access any or all of these AARP research publications (free to the public).
