OK, as regards pensions: the concept is that funding has to be created to care for people in their old age. This funding will come partially from the private sector and partially from the public sector. The greater the degree to which the private sector achieves the funding, the less the degree that the state has to pick up the tab. Flipping this on its head: the greater the degree to which the private sector fails to provide for people in their old age, the greater the degree to which the state has to pay instead. (Either that or it lets people starve. Under this government, could go either way.)
I think that's a wee bit too idealist there about the material interaction between the two - reality at the moment is that both privately provided and state provided retirement benefits are being scaled back, with no compensating/offsetting effect being seen. Likewise in the post war until now period, increasing retirement provision by the private sector via final salary pension schemes (combined with those people living much longer etc..) did not see an equivalent decrease in state pensions as a result
Just in general terms even, if you have a private pension that pays a certain amount, you don't have that amount deducted from your state pension - likewise just because you are drawing a state pension, this amount is not deducted from any payout you may get from a private scheme. Likewise I am unaware of any changes to state provided pensions to compensate for the change from defined benefit to defined contribution pensions which are privately provided. I know you're not suggesting anything as crude as this - but the reality is that the two things are separate and indeed additive rather than complementary in the way you suggest (fair enough there are probably various things around the contracted out status which I don't really know about, but these are marginal)
So let's look at pension funds and how they are financed. To a large degree, these funds own government debt. Indeed, to a large degree, government debt is owned by pension funds. So what's happening there? Government is paying interest to the pension funds. That is enabling the pension funds to grow and (without wishing to spend pages discussing investment strategy vis a vis pensions) to stabilise the costs pensions in payment.
Agreed - however as discussed above, the liability that these private pension funds have for current & future pension payouts, is not one that would be picked up by the state/public sector if those private pension schemes did not exist. (which is what both lbj and yourself seem to be implying in the way that you have both framed the discussion/situation) This again can be demonstrated by the fact that when future private pension payouts are reduced through moves from defined benefit to defined contribution, the reduction in future payouts that the pension provider/company pension scheme enjoys is not offset by an increased cost elsewhere in state provided pensions. So this demonstrates that it's not a case of where pension obligations increase/decrease for private providers they decrease/increase for state obligations - and for lbj's point to be valid, this needs to happen, but it's not.
If this government debt didn't exist, private pension funds would find their tasks considerably more difficult. Volatility would be introduced and where there is volatility, there is cost. In short, you could expect private pension provision to drop.
True, but given most schemes will be defined contribution before long anyway, volatility will be introduced regardless and the cost of that volatility under those circumstances falss on the pension holder not the provider (and that pension holder is not going to be compensated for reductions in private pension income by an uplift in state provided pension payouts). Also, if govt didn’t exist, say because pretty much all functions of the state had been outsourced to or taken on by private interests, then the debt that the state previously used to have, would end up being issued by those private interests (serviced by fees paid by the state which in turn are funded through taxation), and the private pension scheme providers would own that debt instead and use it to back their own pension liabilities
LBJ's point, I believe, is that if this chain of consequences came about, the public sector would have no choice but to make up the shortfall. So they would be saving the coupons on the government debt but they would be paying out on a PAYG basis for retirement provision instead.
But as already demonstrated, in the here & now, the actual reduction in private pension provision (through moves away from defined benefit etc..) that we are seeing at the moment is not leading to any moves by the public sector to make up the shortfall, quite the reverse in fact, the shortfall is being made even worse through a retreat of state funded pension provision (increased retirement age, changing of indexation from RPI to CPI etc, a refusal to previously index pensions to earnings etc....). Your/lbj's model seems to rest on a premise that a certain amount of provision will always be paid, and if the private element increases/decreases the public/state element will decrease/increase, but this doesn't hold true in theory or in practice, either histotically or in the here & now.
