The Devil's Advocate: Out to grass with no fund

Last week, we confronted some of the problems people will face when their lives depend on pension funds instead of IT skills. The alternative is the unfunded scheme, with the most visible recent example being the state pension.

Simpler mechanisms are worth examining first, though. Money is a relatively recent invention and there are still a few societies where it is not central to life. In that situation, the question of how to care for economically inactive members of society is tackled directly. One obvious route to support older people is an inter-generational pact.

Remember, the economic reality is that some members of society need to consume goods and services that they are too young or too old to produce for themselves. Provided society has strong conventions that involve the right of young and old to sustenance, and the obligation of the fit and active to provide that sustenance, all is well. Children are cared for, and they have a moral obligation in adulthood to care for their parents and their own children. In old age, they once again become beneficiaries of the pact.

This simple system can obviously fail if the web of obligations does not provide adequately for some individuals. It also becomes much more vulnerable when, instead of living in large, extended families, we change our ways to the 'modern' pattern of the nuclear family. Once characterised as mother, father and 2.4 children, it is now just as likely to involve single adults or shifting adult relationships, and a mere 1.7 children.

A direct solution to the problem was institutionalised at the end of the Second World War, when the government stepped in and imposed its own scheme of inter-generational obligation. Many of the terms are still in use half a century later. The economically active members of society hand over money to the government, under the guise of National Insurance. That money is used to provide cash payments and services for the young and old members of society, formalising the scheme used by less 'advanced' societies.

Economically, there should be no good reason to worry about the lack of funding. Yet severe worries are being expressed. Why? We have been led by politicians to see any kind of taxation, including National Insurance, as the government taking away our money and spending it, as if the government were some parasitic spendthrift. When the so-called welfare state was created, there was great enthusiasm for social provision. That lasted long enough to reach the sixties, when we had not only the Beatles but also a large group of 'baby boomers' becoming economically active.

With a bulging working population, it was relatively painless to support young and old. But as the baby boomers grew to middle age and pop music went into decline, politicians urged the view that each individual is an economic island. Then, frightened by the prospect of all the baby boomers retiring at a time of a shrinking working population, they started to say that we could no longer afford a state pension.

This, of course, is a complete distortion of the real issue. If we cannot afford a decent state pension, then we can't afford decent pensions at all. No amount of funding alters the economic reality that pensioners need to consume products that they have not created. At one time, the harsh reality was hidden, as it looked as though stock markets could achieve miraculous growth in financial assets. Now it is much clearer that there are economic mechanisms that will trash any financial fund that does not reflect economic reality.

The trouble with the unfunded pension is not that it cannot work in principle, but that it needs a stakeholder who can be trusted. The only feasible candidate is the representative of society as a whole, that is the government. When there are shifts in the balance of different age groups, we need to face the problems as a whole society. The problem we have is that we cannot trust governments to sustain the inter-generational pacts, nor can we rely on them to sponsor an honest debate about the issues. So next week, let's think about IT and stores of value.

** Martin Brampton is a director and founder of Black Sheep Research (www.black-sheep-research.co.uk ), an independent consultancy providing research, writing and speaking services on a wide range of business and technology subjects. Martin was previously a director at Bloor Research, and has worked with IT as a user and analyst for over 20 years. He has been a frequent contributor to silicon.com's Behind the Headlines TV programme and can be contacted at silicon@black-sheep-research.co.uk .