The big news in Osborne’s Autumn Statement was bringing forward the rise in the state pension age. Although officially the change was bringing forward the increase in pension age to 68 by ten years – to take effect in the 2030s – the headlines focused on the implication: by the 2060s, the retirement age will be 70.
Amid groans from today’s teenagers, and forecasts of young people reversing the decision by the time they become legislators, a serious question has to be asked – is “potentially one of the most far-reaching reforms since the introduction of the state pension” fair?
Leisure for longer
Let’s start with why the government feels this move is necessary. By now the narrative should be familiar – we have an ageing population, which means the ratio of workers to pensioners is becoming less favourable. Fewer workers have to contribute to paying for more pensions than ever before, and this looks set to be a continuing trend. And retirement lasts longer.
This fundamental demographic shift is compounded by overly generous pension agreements made in the booming 1980s – gold plated, final salary, defined benefit schemes. In recognition of the strain they’re putting annuity and pension providers under, these have largely disappeared from the private sector, but they are still an ongoing concern in the public.
More people enjoying a longer retirement doesn’t add up. It is perfectly reasonable to expect retirement to come later, in line with rising life expectancies. The government’s move to bring the pension age rise forward by ten years is expected to save a total of £500bn – a valuable sum in the high stakes game of caring for our elderly.
Paying more for less
The rise then, is an entirely reasonable and logical solution to a clear and growing problem. But it still feels unfair. This is partly simple intuition – the thought of working day after day until the age of 70, when your parents (or grandparents maybe) only had to trudge on until 65 just sounds unfair.
But there is more to it. Necessary or not, the age rise is part of a wider shift in working longer, and paying more, to receive less in return.
The most significant shift is from widespread defined benefit (DB) schemes to defined contribution (DC) schemes. A DB scheme guaranteed a proportion of income – either based on final salary or an average – for the rest of your life. Under a DC scheme you pay in throughout your life, ending up with a fixed pension pot with which to buy an annuity. It’s easy to see how you can end up paying far more, to receive far less, under a DC scheme than a DB. DB schemes have all but disappeared from the private sector.
The cost of paying for elderly care is also rising, meaning a greater proportion of whatever retirement income today’s workers have will have to go on healthcare. Either that or rely on their offspring to help look after them or contribute to the cost of a residential home; something that would further squeeze their own income, and reduce how much they can pay towards their own retirement – which according to some would require a pot of around £300,000 for even a basic standard of living.
The inequalities of retirement
So there are some grounds for calling the state pension rise unfair – although they seem both systemic and unavoidable.
What deserves further investigation is the inequalities inherent in the pension system within a generation. As Alex Andreou blogged in The Guardian: “when policy is based on the statistics of a nation riddled with increasing inequality, policy becomes skewed and unfair.”
The important point that Andreou is making is that while national average life expectancy may be rising, local averages may be out of pace. He highlights how average life expectancy in Dorset was nearly ten years higher than in Blackpool in 2011. This is a symptom of the north-south income divide. Similar divides are found between professions.
Simply put, poor people die before rich.
And that means working until 70 means a 13 year retirement for a Dorset professional, but a scant 4 years in which to enjoy their poor value annuity for a Blackpool contractor.
This is a clear case of unfairness.
A swift shot of nuance
So what is to be done? The pension bill is higher than ever before, and will only grow along with the number of retirees. Affording the bill means making people work longer, for less. This much we have to accept.
What is worth examining is injecting much-needed nuance into the state pension age. The inequality in life expectancies between geography, income and profession needs to be addressed. In this respect the firefighter’s strike is entirely understandable. Who wants a 60 year old firefighter turning up anyway?
Not only do those on lower incomes tend to work in professions that are harder to keep up into old age, but the current set-up means that yet again, poorer people are subsidising the rich. As Andreou puts it: “Why should a poor Blackpool builder keep carrying bricks up scaffolds at the age of 69, the proceeds of which labour, long after he has died, will keep a southern office worker in clover?”