Paying the pension

Who's going to pay your pension? For those of us not fortunate enough to have earned enough - or had the good sense to save enough - to fund a reasonable private pension, you are going to have to rely on the State. That State can be rich enough to be generous to its pensioners, such as Finland, where the State pays 13.4% of its gross domestic product (GDP) on pensions, or too poor, such as many African nations. The UK spends around 5% on pensions, the US about 7%.

Pensions are paid on reaching retirement age, but the money may not be adequate; in 2000 the International Labour Organization (ILO) said that around 90% of the world's working age population were not covered by pension schemes "capable of providing adequate retirement income". The ILO said that the US and UK pension schemes carry more risk than those of Western European countries "because the US and the UK systems rely more heavily on occupational and privately funded schemes rather than complete government financing." Comparing pension systems is like matching apples with pears - it's claimed that the UK has the meanest state pension of developed countries, but it also has one of the shortest contribution periods (35 years) to qualify, and the annual increases are currently more generous than others.

State pensions are funded by tax revenues, along with defense, State education, and other State welfare programs. Governments already have a hard time obtaining tax payments; according to the British-based advocacy group Tax Justice Network countries are losing almost half a trillion Dollars/year in various abuses. The getting of tax revenues always goes through a dry spell; pretty soon it's going to be a severe drought, thanks to the fertility crisis.

Not enough babies

Not enough babies are being born in developed countries to sustain these welfarist inclinations. High-income countries have experienced declining fertility for 100 years. To maintain a stable population size women need to give birth to slightly more than two children on average. Less than that means not just a shrinking population. It also means a rapidly rising older population and a smaller workforce. While the global average is 2.3, that figure disguises the fact that women in most of Africa are having several more children than two. In the US the average birth rate is 1.60; in the UK it's about 1.44. In sub-Saharan Africa the average birth rate, although dropping, is around 5. It's the only region which has an above-replacement total fertility rate.

Shrinking populations in the developed world will disrupt, already are disrupting, our social and economic landscapes. As our societies age, pressure on health services will explode while at the same time government's ability to fund not just health but all kinds of welfare programs will diminish, as the size of working age populations falls. The consultancy McKinsey published a report this week on falling fertility rates; among its findings is that the decline of people of working age in western Europe could reduce GDP per capita over the next 25 years by an average of $10,000.

More migrants please

If governments in the democratic part of the world are going to be able to placate voters they will need to sustain the promise of economic growth and the welfare programs such growth supports. As fertility rates continue to plunge that growth is threatened - the drop in tax revenues guarantees that. The range of options is limited - squeeze greater productivity from the shrinking workforce (already a problem in Europe; more than 4 million people, above 10% of the workforce in the UK, are now on long-term sickness welfare benefits); make the retirement age later; cut the level of welfare benefits; take in more migrants willing to work and pay taxes; increase the government debt. None of these choices are popular. Politicians will shy away from them in fear of losing elections. In the US more than 80 different federal mean-tested welfare schemes (excluding entitlement programs such as Social Security and Medicare) now cost more than $1 trillion a year, the largest item in the federal budget.

There is one other option - debase national currencies by printing more fiat money to pay bills that cannot be met by taxation. This option is dangerous because it can lead to inflation, which may be difficult to control. But it has one advantage the other options lack - stealth. We already live with stealthy inflation; central banks and their governments try to create economic conditions in which inflation is about 2%/year.

State failure

It is of course impossible to predict which option states will choose. Authoritarian states don't have to worry so much about falling fertility rates and a shrinking tax base. They will just force their populations to accept harsher conditions. But in democracies the issue of lower fertility and the resulting reduced tax take will come to dominate the next decades. The easiest option for politicians wanting to stay in office would be to borrow more (if possible) combined with a stealthy debasement of their fiat currencies. To avoid gradual impoverishment - and to fund a reasonable retirement - using gold as investment (and e-money) with Glint is a compelling proposition.

At Glint, we make every effort to demonstrate a balanced conversation between gold, crypto and fiat currencies when it comes to purchasing power and, while we strongly believe that gold is the fairest and most reliable currency on the planet, we need to point out that it isn’t 100% risk free. While we have seen a steady increase over time, the value of gold can fall, which means that its purchasing power can also decline.