Business View: We stand to live longer and pay for the privilege

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The Independent Online

Looking at the figures from actuaries Watson Wyatt, estimating that public sector pensions have a £690bn black hole, I was reminded of the words of Tennessee Ernie Ford:

Looking at the figures from actuaries Watson Wyatt, estimating that public sector pensions have a £690bn black hole, I was reminded of the words of Tennessee Ernie Ford:

"You load 16 tons and whaddaya get?

Another day older and deeper in debt"

The Government's pensions problem mirrors that of the private sector, and both ultimately weigh heavily on the wallets of the poor workers. We, like people in the US and most of Western Europe, are heading down a demographic dead-end street as the post-war baby boomers move towards retirement. Thank to improved healthcare and better diets, people are living longer. What this adds up to is that, unless there are some radical solutions, the retired will start to exceed the actively working population in many countries within the next 50 years.

The obvious effect of this is in pensions. These seem to eat up more and more money, and yet seem to need exponentially more to fill up the shortfall. What to do about funding retirement is a debate that has been raging for many years, without anyone really coming up with much of a solution. Adair Turner's Government-backed commission set out the problems last year, but was not charged with suggesting any answers until after the election, for fear of scaring the horses. When it does report, I fear, it will be a little like the start of the Blair administration in 1997, when the PM asked the MP Frank Field to "think the unthinkable" about pensions. When Frank had thunk, Tony got into a funk, and the whole idea was junked.

But if you can look beyond pensions, there are all sorts of other implications of an ageing population that few of us have considered.

A study by SG Securities points out that the trend towards retirement is cutting growth in Europe by at least 0.1 per cent per annum, so that growth will be 1.5 per cent lower than it might have been by 2015. In the UK, this may not be as dramatic thanks to - take note, Messrs Blair and Howard - the level of economic migration that is supporting us.

As growth slows, the European Central Bank will try to stimulate the economies using the only weapon in its armoury - interest rates. According to SG, this could lead to a drop in eurozone borrowing costs to previously unheard of levels - 2.8 per cent for short-term rates is the prediction.

Another effect will be the spending patterns of people as they get older. This is not to say you should be buying shares in Sanatogen, Saga and Stannah stair lifts. It is more to do with the decreased savings rate as people move from working to spending the money they have put away during their working life, as well as the increased level of home ownership as people age.

But the pensions problem will also have a bearing on this. Traditionally, people either saved for their retirement through their company schemes or through personal plans. But the pensions mis-selling scandals of the past decade, the stock market hiatus between 2000 and 2004, concerns about high fees, and increasing unhappiness about the inefficiency of a system where you buy an annuity with your pension fund has led many to look elsewhere. Now that you can include property in your pension scheme, a lot of savers will be tempted to purchase buy-to-let properties to provide retirement income.

All this adds up to long-term support for the property market. The alternative for most people is owing their "soul to the company store".

A bid we'd do well to lose

While my fellow columnist Christopher Walker is agnostic about the London Olympic bid, I'm strongly agin it. On paper, the project looks fine, if a tad expensive. But we do not build projects on paper. We build them in a chaotic, crowded corner of a country with a particularly poor record for delivering large projects on time and to budget. On that basis, the cost of London 2012 is likely to go from pricey to cor blimey, guv'nor.

However, you have to take your hat off to Lord Coe and the organisers, who ensured that the Olympic evaluators visited London during half term, when there was a fraction of the normal level of congestion in our capital city. We could yet win this bid. And we'll be the poorer for it.

j.nisse@independent.co.uk

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