Pension plan providers are wrong

First Published: 2003-01-11

"Using the strong arm of government and its coercive power is not good business. In other countries it’s referred to as cronyism."

Throughout history, people have used the power of government to achieve an end they cannot fulfil themselves. A current example in the Bahamas is the campaign by local pension plan providers urging the government to pass laws to “force” businesses and individuals to have pension plans.

This comes at a time when many industrialised nations are recognising that their government social security systems are in trouble, and may not be sustainable for very long.

While there are compelling arguments for people to save and prepare for their retirement years, why should one business sector be given such valuable preferential treatment by the state? When laws are written to force individuals and companies to join a pension plan, voluntary choice has been replaced by the coercive power of the state…a form of tyranny applied in the interest of a particular industry.

It should not be forgotten that businesses and individuals alike are already compelled to pay into government’s National Insurance pension scheme and a national health insurance system has been mooted that will also have to be paid for with consumers tax dollars.

While the potential profits from such a mandatory pension system must certainly be tantalising, pension plan providers ought to resist using the state in this manner on both moral and practical grounds. Morally, each individual must retain the freedom to choose, and it will be more practical in the long run when the providers and individuals can reap the benefits of the free-market with lower prices and better service.

Regulation and Innovation

Before new legislation is introduced to guarantee a benefit for any industry, consideration must be given to the role of government in a private enterprise economy. For example, should government be using tax dollars to support the local stock exchange? These resources are taken from the wider community for an involuntary investment in an apparently failing enterprise. Who decides on which other failing businesses will be helped at the public trough in a declining economy?

Some regulation may be necessary to protect consumers “lending” their retirement funds to the pension plan providers from fraud and to ensure that contracts are honoured. Some disclosure requirements might be also necessary. But, when the state tries to dictate to the markets and the public is forced to buy or sell according to government rules, productivity falls and economic decline results.

In a free market it is up to providers to find ways to improve their pension programs to attract new business. Innovation is important to investors and meeting the needs of consumers is how companies succeed or fail. Turning to the government for “help” is a shortsighted approach that will lead to unwanted government intrusion into private affairs in general.

Right or Responsibility?

National Insurance, into which Bahamians are already forced to contribute, has been described as a Ponzi scheme *. At current contribution levels there will reportedly be insufficient money to pay retirement benefits in just a few years. Government has entered into a contract with the Bahamian people that it will not be able to honour in the years ahead.

People retiring today consider a National Insurance pension cheque their right, but when the money runs out as a result of government waste and rising numbers of retirees younger Bahamians will begin to see the importance of saving for themselves. They will then realise that a nest egg for retirement is a responsibility…not a right. Unfortunately government is not required to be accountable and the monies paid in by unassuming Bahamians will be frittered away over time.

In the circumstances, privatisation of National Insurance is a sensible idea whose time has come. However, the pension plan providers are simply wrong to use government to coerce consumers into mandatory pensions.

* Ponzi scheme: Form of a fraud in which belief in the success of a non-existent enterprise is fostered by the payment of quick returns to the first investors from money invested by the later investors. ORIGIN named after Charles Ponzi, who carried out such a fraud (1919-20). Oxford.

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