Icki Iqbal points out that he was not the source of the confusion between standard of living and retired standard of living. The criticism in my earlier letter cannot, therefore, be directed at him, and I withdraw it unreservedly as to him.
I am still troubled by the approach set out in his original letter (The Actuary, November 2014 Learners, earners and burners) and by his recent statement that "[it is] so self-evident as to be axiomatic that each generation has to pay its own way. If it doesn't, it will bequeath a terrible burden on its successors." As to private plans this is clearly so, but in the case of public plans it is not.
In a public plan each generation does not have to "pay its own way": it can pass the parcel to the next generations. Indeed, if it does not do so, it is unreasonably burdening the current generation and benefiting those coming later.
Pre-funding a public plan such as US Social Security, as is often suggested by the extreme right wing, would be a prime example.
Funding at a level lower than is needed to support benefits over the long term can obviously lead to a Detroit-style disaster. Right now in Detroit, it has led to an uninformed decision to switch to a defined contribution plan, triggering an unnecessary termination of the defined benefit plan.
This termination will have all the effects that would arise in an insolvent private plan; in a public plan this need not be, though probably some cutback of benefits cannot be avoided in this instance.
Brian A Jones 9 April
