Tuesday, April 21, 2009

Banking On Early Retirement

The governor of the Banco de España, Miguel Ángel Fernández Ordóñez, is becoming a bit of a thorn in the Spanish government's side recently. It's not so long ago that he was publicly promoting that favourite employers "solution" for the economic crisis - making it cheaper to sack people. Last week he created a fresh stir by proclaiming that the public pension fund is in danger, and suggesting that the age of retirement should be raised. This provoked a quick reaction from members of the Spanish government, who accused him of causing unnecessary alarm amongst pensioners, although in reality those who have most cause to be alarmed at this prospect are the people who are still working.

Now there is of course a mathematical calculation that needs to be done to deal with the future effects of demographic changes and the fact that the retired are living longer than they used to. What's open to question is whether the governor's words were motivated by genuine concern about public pensions. Bankers have a vested interest in ending state pension schemes, a decent state pension doesn't help them to sell their own private pensions and reports from banks on the viability of state schemes tend to constantly underestimate trends on income from social security contributions. Also, you can almost guarantee that the most fervent supporters of reducing pension provision for the great majority are those who have "other arrangements", the governer of the Banco de España is unlikely to be worried about his last 15 years of social security contributions. One of the best comments I have seen on the issue is that reported by Ramon Lobo from a taxi driver - to the effect that we'll have people working on scaffolding at the age of 67 so that the bankers can retire at 50. I thought all taxi drivers listened to La Cope, I take back some of what I've said about them.

Spain's social security fund has actually been doing very well in recent years, at least up until the crisis hit. One of the things which helped, much criticized at the time, has been the regularization process carried out that enabled many previously illegal immigrants to have proper contracts and pay social security contributions. Of course there were those who preferred to have these immigrants available as a pool of cheap labour for employees who don't want to pay their contributions or issue contracts, but the effect of the process was to give the social security fund a very significant boost. State pension schemes usually get wrecked by governments that have other priorities, the public pension in Britain has not been reduced to a pittance because the country can't afford it. The objective was to try and move people to private provision for ideological reasons, just as happened with the massive fraud involving those who were persuaded to surrender decent occupational pensions for vastly inferior private schemes. Of course when there is a need to occupy countries on the other side of earth or buy another set of nuclear missiles to replace the rusty ones then huge sums of money miraculously become available. Crack down seriously on massive tax avoidance by the wealthy and other millions will also appear.

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