The Ethics of Funding Voluntary Retirement

Abstract

I distinguish voluntary retirement (of those able to work) from involuntary retirement (of those unable to work). I discuss the former. I argue that the state's pensions policy should be neutral between life-plans, and this requires the following two changes. First, tax relief on private voluntary retirement pensions (PVRPs) should be abolished because it effectively transfers money to those saving for a long and/or prosperous voluntary retirement from those who would prefer to have more time and/or money while young and middle-aged in exchange for a shorter and/or less prosperous voluntary retirement. Tax relief would remain unchanged on private involuntary retirement pensions. Second, state pensions should be split into two components: a compulsory “state involuntary retirement pension” (SIRP) and an optional “state voluntary retirement pension” (SVRP). Citizens opting out of the SVRP—or paying less toward it—would correspondingly enjoy a higher income while young and middle-aged.