The blue social model is under strain across the Western world, from U.S. state and local public sector pensions to Spain’s social insurance system to Britain’s defined-benefit retirement programs. Bloomberg reports:
Britain’s millennials, already suffering for the economic mistakes of the past, now face the prospect of having to pay for the country’s future.
Pension-fund liabilities in the U.K. increased to a record 1 trillion pounds ($1.3 trillion) after the Bank of England’s interest-rate cut this month, hurt by quantitative easing and razor-thin yields. It’s Britain’s version of what Duquesne Family Office LLC Chairman Stanley Druckenmiller calls “Generational Theft” in the U.S. […]
“Savers in pension funds are being forced into ultra-low yielding securities, which will inevitably post losses over the medium term,” Mark Dowding, a partner at BlueBay Asset Management LLP, said on Monday. “This is not a healthy situation.”
Like the U.S. Federal Reserve, the Bank of England has kept interest rates low in the wake of the Great Recession in an effort to force the fragile recovery to pick up steam. This is almost certainly boosting economic growth and staving off recession, but it is also making both countries’ fiscal-demographic tsunamis more devastating in the long run. Whether or not this tradeoff is wise, it points to deep structural challenges to the social model Westerners have been taking for granted since the Second World War.