Demographic shocks, inordinately long bear run in the markets, financial scandals, and accounting problems have all rocked the pensions boat. Even after a century of industrial revolution, pension systems are yet to evolve.

My late father had a saying to the effect that just when everything in life seems settled, the Almighty takes the planet and gives it a good shake, unsettling everything. And thus, it's in the world of pensions provision: just when we reach a point when we think that we have got things well-organized and begin to experience some stability, along comes a shock to the system which forces us to rethink our position and reorganize the way in which do things.

In recent years these have been seen as including demographic shocks, the problems caused by inordinately long bear runs in the financial markets, as well as the multitude of problems highlighted by scandals such as those involving Enron. And these are simply the first-stage problems! Like so many issues that have both an economic and a political element, the reform of pensions provision is often plagued by simply taking on new regulations to an existing structure, so that it tends to "grow like topsy". I firmly believe that it would make more sense to start with a clean slate: devise the kind of pensions system that we believe would be optimal, then ask how do we get there from here? Thus, in order to see our way ahead we need to begin with a proper understanding of the role of pensions provision in today's world.

The main reason for the existence of pensions is to be found in the mists of history and, in particular with the latter stages of the industrial revolution. In the UK, the beginning of pensions are to be found in the late 17^th century, when H M Customs and Excise adopted a system whereby each new recruit was forced to pay one-half of his salary to his predecessor; a crude form of Pay-As-You-Go or intergenerational transfer. Pension schemes in the British civil service began in earnest in the early 1800s with the first Superannuation Act being passed by Parliament. While there had been some schemes in the UK corporate sector, these were hardly formal, and tended to be much more a rare case of benevolent paternalism, consisting largely of ex gratia payments. The beginnings of any state pension provision occurred in Bismarck's Germany in 1899.

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