Rudolf Richter and Wilfried and Lothar Ackermann made an unusual team of bank robbers: they were all pensioners, two in their mid-seventies, one in his sixties. This did not prevent the trio from holding up no fewer than 14 banks across Germany, temporarily boosting their retirement income by a total of €1.3m. The old boys had only modest state pensions and had been emboldened by rage at the bonuses being paid to bankers.

The Carrot Gang (as they should be named after the vegetables they held menacingly in their pockets) were part of a wider pattern of such attacks by elderly Germans: last week another group of pensioners were arrested after they allegedly kidnapped and assaulted an investment adviser who had lost much of their savings in the credit crunch.

These episodes are a portent of Europe’s future problems and might also inspire one of the solutions: the Continent – and to a slightly lesser extent the United Kingdom – is on the cusp of a demographic crisis, the financial implications of which far exceed in seriousness and scale the costs of the credit crunch.

The baby boom following the second world war led to a kind of demographic golden age as those children found their way into the employment market. A high number of people in work, combined with a stable number of pensionable age, generated a tremendous flow of taxable income. This was duly taxed, creating the “big state” of welfare payments and National Insurance which is now about to unwind with a vengeance, in large part because the baby boomers themselves have been less inclined to procreate than their parents.

The fertility rate in Europe fell from more than 2.5 children per family in the early 1960s to about 1.5 by the middle of the 1990s; thus the balance between earners and the retired is reversing dramatically – and not in a good way.

The International Monetary Fund has just calculated the impact of the credit crunch on the treasuries of Europe and, as you would expect, the picture is not pretty. Yet the IMF goes on to point out that this fiscal headache is as nothing to the migraine which, absent a change in policies, is about to pulverise us: it states that in the period between now (yes, now) and the middle of the century, the fiscal impact of the credit crunch will be about a tenth of that caused by the demographic crunch.

If you need to know why the IMF’s prognosis is so bleak, seek out Richard Ehrman’s The Power of Numbers, to be published next month by the University of Buckingham Press and the Policy Exchange think tank. It is a devastatingly clear exposition of how unprepared we are in this country for the consequences of demographic decay.

As Ehrman reveals, the European commission set things out explicitly in a report on “fiscal sustainability” published two years before the credit crunch – the sort of report nobody wants to read, especially not the finance ministers and prime ministers of national governments. It declared that the demographic timebomb was about to go off “in the hands of our children and grand-children, presenting them with a burden that is simply not sustainable. This is a problem that needs to be tackled through both a reduction of public deficits and debt and further reform of the pension, healthcare and long-term care systems”.

It is perhaps no accident that the German government has been the most fiscally prudent: its birth rate has long been among the lowest in Europe, especially after the absorption of East Germany. Gordon Brown, by contrast, has been at the other end of the responsibility spectrum, not just in bequeathing an economy of unprecedented indebtedness, but also by his consistent promotion of policies that discourage saving – starting with the abolition in 1997 of tax relief on pension fund dividends.

The Labour government has not been shy in quoting John Maynard Keynes in defence of its borrowing policies to deal with the credit crunch; but Keynes also wrote a paper called Some Economic Consequences of a Declining Population back in 1937 when Britain also seemed to face a demographic slow-down. Keynes warned: “The first result of a changeover from an increasing to a decreasing population may be very disastrous.”

Britain’s most celebrated economist had envisaged some of the problems which now confront us – but the situation in the early 21st century is perhaps more serious still, as our peoples have become used to a welfare state which had not come into existence at the time of Keynes’s warning. In particular, the years of the baby boomers in employment – the demographic window of prosperity – financed a system in which it was possible to grow the economy while having close to 4.5m Britons on incapacity benefits, or other less disguised forms of unemployment relief.

In the United States, President Clinton dealt head on with the problem of a worsening dependency ratio with his welfare reform programme, launched in 1996. Clinton’s apparently harsh measures to introduce a time limit to unemployment benefits had a dramatic effect in boosting employment among the poorest. The new Labour administration purported to admire Clinton’s policies, but never had the courage to emulate them, even at a time of uniquely favourable economic circumstances.

Instead, Blair and Brown used immigration as a way of meeting a growing economy’s demand for labour: for example, more than half of all newly qualified nurses in this country have been born overseas. This is one way to tackle a demographic shortfall, but it is grossly inefficient to import transient labour in the hope that the tax those immigrants pay will indefinitely continue to finance the unemployment benefits of ill-educated and untrained native Britons.

Interestingly, Frank Field, the Birkenhead MP who argues forcibly for greater restrictions on immigration, has also long been an advocate of introducing time-limited unemployment benefits. Field’s position is at least coherent, which is presumably why he is almost a lone voice in the Palace of Westminster.

Another principled thinker, who as a pensions adviser in No 10 during the Blair years was naturally ignored by neighbour Brown, is Dr Ros Altmann. For some years Altmann has argued that it will be necessary to abandon altogether the idea that people should retire automatically in their sixties, only to spend 20 or 30 years in unproductive near-penury: we should work, if only part-time, for as long as we are physically and mentally able to do so.

After all, when British and European governments first introduced the idea of state-guaranteed pensions, most workers never reached the age at which they were entitled to receive them; even by the 1950s, the average British male would spend only the last 10 years of his life receiving a pension. The miracle of modern medicine has changed all that – and the financial calculations that went with it.

Dr Altmann believes the reason why civil servants have been loath to support her ideas is that they want to hold on to their own gorgeous pension entitlements, which would become completely indefensible once the politicians began to confront the issue properly.

We can only hope that the next government has the courage to do so. It should draw great encouragement from the bank-robbing spree of Herr Richter and the brothers Ackermann: a most instructive demonstration of the energy and capacity for new part-time forms of employment that can be expected from the statin-fuelled seventy-somethings of the 21st century.

dominic.lawson@sunday-times.co.uk

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