Universal Basic Income is DB v2.0

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A strange thought occurred to me the other day, hear me out on this for two seconds.

Perhaps Defined Benefit Pensions are showing us a way forward in the future?

I had just finished reading the excellent Stories from 2045, which as I summarise here contains many angles on the theme of managing (successfully or otherwise) the transition to a post-work economy. Many thinkers believe that one way to help this transition would be some form of universal income paid to all citizens, which could fund a reasonable standard of living (made much cheaper by technological advances). This income could help people and communities that have been rendered unable to work or generate meaningful income in the future.

There are some parallels to DB pensions here, in that a fairly large part of DB pension liabilities relate to industrial-type companies that are in industries that now far less significant (in the UK or US anyway) than they once were in their heyday. In some of these cases (think steel, mining, auto-manufacturing, even transport and retail) this effect can also be geographically concentrated, linking entire communities and areas to these industries with attendant social difficulties as these industries have declined. Enter defined benefit pensions. They weren’t set up with this exact outcome in mind, but there are likely to be industries and communities out there were the income from defined benefit pensions forms a really important part of the overall income into the community, and in a sense is helping those people manage the transition away from the industrial economy of the 20th century. And many of these funds will be generating returns for their members by investing in exactly the sort of new technologies or markets that displaced those worked on by their beneficiaries, helping support the transition from both sides (for example the British Coal scheme investing in renewables).

In the same way perhaps similar vehicles could help manage the transition away from a jobs-based economy? If you think about it a universal income is a bit like a state pension with a much lower retirement age.

There’s an obvious roadbump in that argument straight away – DB pension schemes have been closing (and retirement ages increasing), largely due to massive increases in the cost of providing a long-term income (driven by rising longevity and falling expected investment returns). We have been firmly moving away from a defined benefit model. So how could they possibly be a model for the future?

The answer might lie in the change in the cost of living. If inflation were running at a significantly negative level (representing rapid cheapening of a given lifestyle, which some think would be possible in a future world) then the proposition of providing a future inflation-linked income stream might not seem so difficult (as long as the payments themselves could decrease in line with deflation).

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