EVERY time pensions or other old age benefits are reformed, the debate is dogged by a familar refrain. It is unfair to cut benefits because people are only getting back what they paid in.
To be fair, that misunderstanding of the system has been built into it from the start. In Britain, Lloyd George introduced the idea of contributory benefits and William Beveridge, the father of the Welfare State, said in 1942 that
Benefit in return for contributions, rather than free allowances from the State, is what the people of Britain desire
In America, when Franklin Roosevelt launched Social Security, he told Congress that
First, the system adopted, except for the money necessary to initiate it, should be self-sustaining in the sense that funds for the payment of insurance benefits should not come from the proceeds of general taxation.
Workers (and their employers) make national insurance contributions (in Britain) and pay payroll taxes (in America) and these payments generate the entitlement to future benefits (with an important exception, which we'll come to later)....Continue reading
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