Sunday, December 29, 2013 9:17 am
How the notion of retirement for workers took root
By PAUL WISEMANAP Economics Writer
Until the late 19th century, that was the old-age plan for the bulk of the world's workers.
Only in 1889 did German Chancellor Otto von Bismarck introduce modern pensions. Bismarck wasn't really motivated by compassion for the plight of the working class. He wanted to pre-empt a growing socialist movement in Germany before it grew any more powerful.
The idea of providing financial security for the aged gradually caught on and expanded in Europe, the United States and other advanced economies. Now, as life expectancy reaches lengths Bismarck couldn't have imagined and retirement lasts two or three decades, these countries are struggling with government pension plans they can no longer afford.
The pension Bismarck offered was the first to be widely available. But it was hardly the world's first.
In 13 B.C., the Roman Emperor Augustus began paying pensions to Roman Legionnaires who had served 20 years. The troops' pensions were financed at first by regular taxes, then by a 5 percent inheritance tax, according to a 2009 history by Frank Eich, an economist now with the International Monetary Fund.
In the 16th century, Britain and several European countries offered pensions to their troops, starting with officers and gradually expanding to enlisted men. The first civilian public servant known to have received a pension was an official with the London port authority. In 1684, he was paid half his working income - deducted from the pay of his replacement.
Thomas Paine, the Revolutionary War firebrand famous for his essay Common Sense, called for a 10 percent inheritance tax. Part of the tax was to be used to pay benefits to everyone age 50 and older to "guard against poverty in old age," according to a history by the Social Security Administration.
The idea went nowhere.
After the Civil War, the U.S. government paid pensions to disabled or impoverished Union veterans or to the widows of the dead. Southern states paid pensions to disabled Confederate veterans. The Civil War pensions became a basis for Social Security decades later.
When farming dominated the economy, most men worked as long as their health held out. As they aged, though, they often cut their hours and turned the most physically demanding chores over to sons or hired hands. In 1880, when half of Americans worked on a farm, 78 percent of American men worked past age 65.
As factories began to replace farms in economic importance, skeptics wondered whether old folks could understand and work with the new machines. One of the giants of American medicine, Johns Hopkins Hospital co-founder William Osler, in 1905 decried the "uselessness" of men older than 60 and said they should leave the workforce.
Growing prosperity also meant more people could afford to stop working late in life.
In 1875, American Express offered America's first employer-provided retirement plan. Five years later, the Baltimore and Ohio Railroad introduced the first retirement plan, financed jointly by contributions from an employer and its workers.
From there, private pension plans grew. In the United States, the plans received a boost during World War II, when the government imposed wage freezes. That led some companies to offer pensions and other benefits to attract scarce workers.
The United States created Social Security in 1935 and added Medicare health benefits for the elderly in 1965. In the 1980s, many countries lowered the age at which people could retire and collect full benefits. This step was part of an effort to clear older workers out of the labor force to make way for the young.
Now, governments are reversing those policies and raising retirement ages to prevent aging populations from breaking their budgets. And older people, who now enjoy better health, are working longer again: In the United States, 18.6 percent of people 65 and older were working or looking for work as of November. That was up from a record-low 10.4 percent in January 1985, according to Labor Department figures dating to 1948.