Dr. Ros Altmann CBE, independent expert on consumer finance, pensions, retirement, care funding and economic policy. Advises governments, corporations and industry bodies. Recently appointed as UK Government's Older Workers Business Champion.

The Times - Spend the 'bonus' years on work and play

by Dr. Ros Altmann

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Proposals to raise the state pension age to 66 in 2016 have certainly captured the headlines. However, dealing with our fiscal and demographic crisis is not as simple as that. The trend to longer working lives is inevitable, but policy needs to be much more carefully thought through.

Just tinkering with the pension age will not, in my view, solve the problems faced by the UK's rapidly ageing population. Nor is it likely to generate the anticipated cost savings, unless accompanied by other changes, in a comprehensive reassessment of later life incomes. Surely, it is about time we finally put pensions on a sustainable path.

Astonishingly, we have only just introduced the last set of state pension reforms - which politicians assured us would sort out our problems until at least 2050. I warned at the time that these 'long-term' reforms were not a sustainable solution and now the Tories are proposing changes before these even start.

However, just tweaking parts of the system is rather like rearranging deckchairs on the Titanic. The system is sinking and, as the rate of growth of the population over age 65 is set to soar in the next few years (see accompanying Chart), we must radically rethink both pensions and retirement.

The reality is that the UK state pension is just about the lowest and most complex in the developed world. After an entire working lifetime of national insurance contributions, our full Basic State Pension is only around £95 a week. Increasing it in line with earnings will make precious little difference. Workers may also receive a bit extra from the Second State Pension. However, the means-tested, non-contributory Pension Credit pays £130 a week to anyone over 60 who has little or no other income. In fact, nearly half of pensioners are eligible for these means-tested benefits. Those who have not bothered to save and do not keep working may be paid more by the state than those who have contributed for decades.

Changing the pension age does not deal with this fundamental problem that, for many, the state pension system poses disincentives to saving and working longer. If state pension age rises to 66, but 65 year-olds cannot find work and have little or no other income, they will end up on pension credit, which could pay them more than their state pension, thus calling into question the estimated cost savings.

Just making people wait another year for their state pension is an old-fashioned way of thinking. Inevitably, people will see this as forcing people to work another year and is not widely welcomed. However, with a more visionary approach, the idea of longer working lives could be a positive, not a negative message.

We require a radical reassessment of the whole concept of retirement, to accompany changes to our pension system, sweeping away mass means-testing. We need to think differently about working lives. The arbitrary age of 65 or 66 should not be a 'target' date for people to stop work altogether. Part-time work at older ages should be encouraged.

It is fantastic news that we are living much longer, healthier lives. Most people are not 'old' at 60 or 65 any more, so why do we throw them out of the labour force at that age, especially as most jobs no longer entail heavy manual labour?

Retirement should be a process, not an event. There is a whole new phase of life waiting to be enjoyed, which would give people a much better standard of living and much more leisure. Perhaps working two or three days a week and having four or five days a week free, with more money to spend in that extra leisure time; a phase of life, after a full-time career, where workers cut down but do not stop altogether.

These would be 'bonus years' which previous generations could not enjoy, either because they did not live long enough or were not in such good health. Obviously there will be individual differences, but the concept of part-time work in later life is a social revolution that could benefit us all. Just as we have achieved this for working mothers in the past thirty years, I am convinced we will do the same for older people. Employer attitudes will have to change.

A major factor in our pensions crisis is that people are living much longer than expected, which means longer and longer periods of retirement. In the 1950's, as the chart shows, the average worker would probably spend two thirds of their life in the labour force, earning money to live on. Nowadays, as people stay at school longer, retire earlier and live later, only about half their life is spent earning. As life expectancy keeps rising, if we do not change the concept of retirement, people will spend more than half their life out of the workforce.

But, if we do make these changes, in future the average 70 year-old could be working part-time, perhaps job-sharing or mentoring, or even having retrained in later life to do something that they always wanted to do, with more money and more leisure time. There should not be any one particular age beyond which people plan to do no work.

Just tweaking parts of the pension system to fit fiscal projections will not deal with the problems of an ageing population. However, planning for 'bonus years' and rethinking retirement, with a simpler, non means-tested state pension, would be a major leap forward.


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