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One cheer for Tony

Money | British Prime Minister Tony Blair wants to increase Britian's retirement age

Issue: "Bird flu," June 10, 2006

It's difficult to know whether, or how much, to applaud a pension-reform plan unveiled late last month by British Prime Minister Tony Blair.

On the one hand, it contains the single most important element of any serious reform effort, an element missing in President Bush's Social Security proposal last year: namely, it raises the retirement age. On the other hand, the Blair plan dilutes the impact of that reform by increasing the benefits paid out to pensioners.

Mr. Blair wants to hike the retirement age from 65 to 66 beginning in 2024 and then to 68 beginning in 2044. But he also wants pension payments to rise with worker earnings instead of with inflation; since earnings have tended to rise faster than inflation, that means a potentially higher price tag for taxpayers.

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The plan also includes a "National Pensions Saving Scheme" into which workers would pay 5 percent of their salary, if they so choose, and into which businesses would pay 3 percent of each worker's salary. Work and Pensions Secretary John Hutton hopes that this will build "a new savings culture" in Great Britain.

"If we can crack this as a country," said Mr. Blair of pension reform, "we will be doing something probably most countries have not been able to do."

For all the problems with Mr. Blair's plan, it does at least deal with the root of the pension crisis-a crisis entirely of our own making.

Since people tend to blame politicians or bankers or other faceless conspirators for economic problems, it is important to pinpoint the exact reason that the West is heading for severe pension problems: Baby boomers on both sides of the Atlantic did not have enough children.

It takes a sizable workforce to maintain a comfortable retirement for seniors, and the United States will not have enough workers to provide for the huge boomer cohort. Great Britain and other European countries are even more directly behind the demographic eight-ball.

When that reality is coupled with the fact that baby boomers will live longer and healthier lives in old age than previous generations did, the solution to the problem becomes very clear: Raise the retirement age for boomers.

But aside from being entirely reasonable and logical, raising the retirement age is also political poison. So one cheer for Mr. Blair for proposing a reform that the United States and other Western nations will have to consider soon.

Balance Sheet

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Timothy Lamer
Timothy Lamer

Tim is managing editor of WORLD magazine.

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