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I’ve been doing some research on NEST before posting some detailed thoughts on why I think its going to face trouble and I stumbled upon an old article by myself from 2004. I think I was more surprised by the reference to Newt Gingrich back then seeing as he’s running for office again!

Anyway I was taken, with the benefit of hindsight, with some of the predictions and some of the policies I was advocating back then. Some of the predictions I got spot on, but for completely wrong reasons so I can’t take any credit for them.

Interestingly though I did warn that one of the biggest issues we faces was a generation retiring in debt – and that looks like it has very much come to pass.

The policy I did fundamentally believe in then was that pension contributions of some description had to be compulsory if we were not to face a serious crisis in retirement.

So my view of NEST is simple it’s too little, too late and lacks the courage and leadership that we so desperately need on this issue. It’s compulsory pensions “lite” when we need the full fat edition and 10 years too late.

Anyway here is the article in full – a quick word of thanks to my old friend Dewi John (the editor of Investment Adviser at the time) for coming up with the title!

What economic legacy will follow as the baby boomers move to retirement?

By Neil Lovatt. Published Aug 03, 2004 in Investment Adviser

Articles about the baby boomer generation generally talk of the hope that this generation has brought to the world and their continued positive contribution to our collective future. This is not one of those articles.

The progeny of the baby boomers were dubbed Generation X by Douglas Copeland as the title to his brilliant novel. The book opens with a young member of Generation X vandalising an Oldsmobile – the ultimate expensive sports utility vehicle – with a bumper sticker: “We are spending our children’s inheritance”.

The financial services industry still clings to the notion that the baby boomers will be the saviours of us all. It is all wishful thinking.

Psychologically, there is nothing unexpected in this widely held assumption; the vast majority of managers and executives in the financial services industry are baby boomers, and it is typical of this generation to hold themselves up as the ultimate solution to the world’s ills.

This arrogance is not symptomatic of some great failing unique to this generation, it is only the manifestation of a collective self confidence which affects any group which represents such a dominant majority.

One can see the impact of the baby boomer population, but their big failing was that they did not reproduce. From the orgy of post war copulation that spawned them, something unprecedented in the history of humanity occurred. The growth rate in the population began slowing, quite natural after such an artificially created boom, but it kept on falling and is now well belowreplacement levels – that is, 2.1 children are required to replace their mother and father. The implications of all these changes are immense and they are not all that positive.

As the baby boomers pass their most economically productive years, the economy faces a crunch point. Either an economically and politically impossible increase in taxes or a rise in savings and investment. Hence the misplaced confidence that everything will eventually come good for the financial services industry. But how confident can we really be that the baby boomer generation will not simply dump their problems onto their smaller numbered successors, Generation X?

American indications

Being ahead of the baby boomer cycle, the US gives us some interesting pointers to generational conflict in our future. The political power of the boomers in the US is so strong that even the tax cutting congress of Newt Gingridge did very little to attack the huge range of benefits and allowances which are unfairly skewed towards older Americans.

A slightly disturbing development has been the advent of elderly-only communities in the “sunbelt”, openly advertising the fact that their taxes are lower because they do not have to pay for any schools.

State support in the UK will all depend on the government in, say, 2020 when the boomers are a dominant political force. So one could argue that the boomers have an alternative solution: do nothing, do not bother saving for retirement and then, when the time comes, they know they will be a significant – if not controlling – political constituency amongst the electorate, at which point they simply vote themselves huge increases in benefits.

Even worse, what happens when the boomers begin to dis-save the assets that they have set aside? The boom that they are attributed with creating in financial assets on the way up could be nothing compared to the crash they could cause. The political effect would be a huge wave of anger and revulsion which could easily turn into a forceful backlash demanding an increase in state support and benefits to compensate.

Far from waking up to the dangers, boomers are arguably going in the wrong direction; witness the explosion in government and personal debt. Before meaningful savings can take place, these debts have to be repaid. With the clock ticking away, the boomers face a mountain to climb in terms of provision and over the last few years they have been digging rather than advancing.

Compulsory savings do not represent a constraint on people’s freedom – far from it. They are the only way of ensuring a fair and equitable distribution of wealth across generations. The question is simple: you can have compulsory savings on the majority now, or you will have compulsory taxation of a minority later.

Throughout history every generational cycle has brought a new wave of fresh thinking and new ideas to politics, culture and to the economy, but now we face stagnation as one generation dominates from counter culture into old age. It is by no means clear that the baby boomers will act their age and face up to their personal responsibilities. We should not rely or depend on them waking up; something more drastic has to happen.

This is the generation which hoped they died before they got old; well, they are reaching retirement age now, did anyone ask Roger Daltrey if he had a plan B?

No advice has been provided by Scottish Friendly. If you are in any doubt as to whether a savings or investment plan is suitable for you, you should contact a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting Advisers may charge for providing such advice and should confirm any cost beforehand.