Can We Rely on Government Finances?

What is the one thing people overlook when thinking about pensions or government benefits – including areas such as healthcare, education and law and order? Can my government afford it?

The world is changing and things we often take for granted are being fiercely debate by politicians everywhere. Changing demographics aside we live in a world where governments simply can not afford to spend like they have in the past. Take Japan as an example – the birth rate is so low that very soon the population will begin to decrease. The consequence is an aged population with fewer working and, as a result, a lower tax take. Lower taxes equals less money for the Japanese government to spend. Logic dictates a reduction in spending. While a slightly simplistic take, the same could be said for most developed nations on the planet.

So what gives? The reality is we can no longer rely on governments to be there for us – particularly for those of use still young and a ways off retirement. Generous pensions are a thing of the past and most developed countries face huge pension deficits we no real plan of dealing with it. Take the UK as an example – billions of pounds are paid each year to those with public sector pensions. If you take a closer look at the numbers you soon realise the bulk of the money comes from the yearly tax take, not the individual contributions each member makes. As the number of retirees increases so does the burden on the remaining taxpayers (not to mentioning people living longer as well as taxpayer obligations elsewhere). It may come down to a choice between a generous pension or free healthcare – just look at current NHS spending cuts. If the private sector is any indication then a storm is brewing.

People need to take a more active role in their retirement planning and if the first step is simply recognising that the blind faith in a government just being able to spend is dangerous. The pension issue always seems to bubble under the surface, usually overshadowed by big, short term money issues. The problem with pensions is the obligation never goes away, it just keeps getting larger and larger. Estimates in the US put the combined public sector pension deficit at between USD$1 trillion and USD$3 trillion – this is just deficit the actually liability (the amount required to pay everyone) is magnitudes above this. Something simply must give!

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