Name : Arief Adhiyanto Kusumo Putro
ID : 26177358

State Pension should not be Abolish
Nowadays, discussions about government involvement in pension funds schemes are being more interesting. As reported in their fifth report, House of Commons Work and Pension Committee in Great Britain reported that people were arguing about whether can they rely on state funds pension or they have to manage our own pension funds scheme (Great Britain, 2012). According to The Australian Financial Review (2015), age pension in Australia costs $42 billion a year, this number is equal to 10 per cent of all government expenditure. It is growing much faster than the economy and taking an increasing share of government spending. Some people might think that government should not spend all of those money, which is earn from working population, into state pension funds. In addition, based on Australian Bureau of Statistics (2014), the proportion of people aged 65 years and over increased from 11.8% to 14.7% and the proportion of people aged 85 years and over almost doubled from 1.0% of the total population in 1994 to 1.9% in 2014, while the proportion aged under 15 years decreased from 21.6% to 18.8%. Government will spend a lot of money for the elder population while they are getting less from productive age population. However, in this paper we will see why we should not abolish the state pension by arguing this following topic like definition of pension system, type of pension and benefit of having state pension.
Cannon and Tonks (2014) argue that pension system is designed to guarantee that individual still have sufficient savings to live after work retirement by giving them a regularly income that is quite similar to their previous income while they were still working.
There are many various type of pension system. The World Bank proposed a three different financing and managerial arrangement for old age security in 1994 as a vary of pension system in its research report titled Averting the Old-Age Crisis which are Public Pay As You Go (PAYG) plans, Occupational plans and Personal savings and annuity plans (World Bank, 1994). Beside these three pillars, Blake, D (2000) also divides pension funds scheme into 4 pillars, namely unfunded state pensions (that is, transfers from the current working population via tax system), funded private pensions (that is, from savings accumulated in private sector pension schemes), direct private savings, and post-retirement work. Basically those two concept are similar, the first pillar is stating that state / government will organize working population’s income to be distributed to elderly people who has no more earning capacity via tax system. On the other hand, for both pillar two and three, pension fund system will be organized by non-government parties. As a conclusion to both concept, Stegăroiu (2012) cited Stegăroiu (2004) as asserts that “the fundamental principal underlying the multi-pillar pension systems is to diversify the sources of the income from pensions by their bearings, to the state and the private” (p.5). So, basically we can differentiate two types of pension funds scheme based on who will provide it, which are state / government or non-government parties.
The fundamental reason why we should not abolish state pension is because it will wound the human rights as human being. Universal Declaration of Human Rights (1948) states that “Everyone, as a member of society, has the right to social security and is entitled to realization, through national effort and international co-operation and in accordance with the organization and resources of each State, of the economic, social and cultural rights indispensable for his dignity and the free development of his personality” (article. 22). All the people in the society will have similar rights to live comfortably.
Primary objective of state funded pension is to guarantee social security. Wang et al (2014) define social security as “a