Radical state pension reform cannot be delayed
by Dr. Ros Altmann
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Pension reform cannot be delayed any longer and the new Government says it is determined to reinvigorate pensions and retirement. The demographic time bomb is ticking as the first baby boomers reach their 65th birthdays in 2011 followed by millions more in the next twenty years or so.
Government has had many years to prepare for this, but has failed to rise to the challenge. Office for National Statistics figures show that a man aged 65 today can expect to live to 82.4 years and a 65 year old woman to age 85. That’s nearly 20 years in retirement, assuming that you work to age 65. The majority of people who retire between 55 and 65, face a retirement span of up to 30 years.
With the UK’s State Pension being one of the lowest in the developed world, many of them face living in poverty for an increasing number of years as life expectancy increases by two years every decade.
Pensions policy has actually been doing the opposite of what was needed to prepare for an ageing population. Instead of increasing pension ages, as people were living longer and longer, Government kept cutting the state pension instead, in an attempt to control costs. This short-sighted thinking has left us with a pensions crisis, which is about to become a pensioners crisis.
The full Basic State Pension is just £97.65 a week. This level of pension is inadequate and must be increased. Radical reform of the state pension system is urgently needed, if we are to avoid condemning future pensioners to a life of penury in retirement.
What we really need is for the government to pay a much more generous state pension for all straight away, rather than tiny incremental increases, but it will have to start from a higher age.
The Government has indeed proposed making the state pension more generous with a ‘triple lock’ guarantee that it will increase in line with either earnings, prices or 2.5%, whichever is highest. However, this state pension increase will still be very slow so, even after several years, the state pension will remain too low. The Government also plans to increase the age from which the state pension starts to be paid.
Women’s pension age was already set to increase to 65 by 2020 and then rise to 66 after that. The coalition now proposes to raise the male state pension age to 66 by 2016 (instead of 2026 as proposed by the previous government). In fact, even this change will not reduce costs because life expectancy will have risen by more than one year by then anyway. I believe the government should raise the state pension age continuously in line with rising life expectancy.
Increasing the state pension age is inevitable and, indeed, it should have already happened a few years ago, but this policy on its own is not nearly sufficient to address the pensions crisis.
Just raising the state pension age will not work, if older people cannot find jobs. Employer attitudes need to change, and Government needs to make it easier for those aged over 50 to continue working – especially part-time. This means strengthening anti-age discrimination legislation and ending the Default Retirement Age of 65. We urgently need to encourage people to work longer if they are able to and want to do so.
If the government fails to shift attitudes and working practices, the result will be lower economic growth, greater pensioner poverty, higher dependence on state benefits and potentially social unrest.
Many people in their 50s, 60 and even 70s want to continue working part-time, for both social and economic reasons. Studies show that working can improve the mental and physical well being of older people who might otherwise suffer from social isolation and financial pressures.
So we need to get away from the idea of one fixed retirement age beyond which older people are unable to work.
Clearly, those who are unable to work in their 60s and 70s after a lifetime in heavy manual occupation or because of ill health, should be supported by benefits until their state pension becomes payable. Pension Credit and other means-tested benefits already fulfil this role.
There are significant geographical and occupational differences in life expectancy, whereby the inhabitants of certain districts in Glasgow have a significantly lower life expectancy than those living in west Dorset and Kensington & Chelsea.
In conclusion, by providing a more generous state pension, the government would give people a solid base on which to build for their retirement. It is inevitable that this higher pension will need to be paid from a later age, but this can only reinvigorate retirement if the labour market facilitates longer working lives, with an end to employer ageism and encouragement of part-time work in later life.