Thoughts on politics and life from a liberal perspective

Thursday, 24 June 2010

The pension age has to rise

There are reports this morning that the government is looking to move the age at which state pensions are paid to 70. There were previously plans in place that would have made the age at which this happens 68 by 2046 but the government wants to go further sooner than this.

It is about time. When the state pension in its current form was introduced in 1946 (with its 65 age threshold for men and 60 age threshold for women) life expectancy rates for men were 64 and for women they were 69. Also, many fewer women worked in those days and hence qualified through NI payments for the pension anyway. It meant that on average men did not actually end up claiming the pension and women only for a few years. Now life expectancy rates are around 77 for men and 81 for women. There are also many more women in employment nowadays and also changes in the NI rules mean many more qualify (and rightly so). So on average we are now looking at around 12 years on pension payments for men and 21 for women. The life expectancy rates are also going to keep rising. The pensions system was never designed to cope with these sort of lengths of average retirement.

So I welcome the reforms announced and I just hope that this government has the political will to carry them through. It is politically very difficult because the demographics that the changes affect most are those who are most likely to vote. However I would hope that they will recognise that we cannot carry on the way we have been going.

One thing I would say though is that we do need to be careful about which jobs we expect people to carry on doing. It's all very well to ask someone who works in an office or other sedentary vocation to continue for a few years. But it would not be fair to expect for example a coal-miner or people who work in other extremely physically intensive labour to do the same thing, and indeed other professions where there are other reasons why it typically is not practical to continue into your late sixties. It is sometimes possible for people who have worked in professions like these to switch to other careers but that is not easy and I will be interested to see what provision is made for these sort of situations.

I also wonder if the retirement age needs to be linked somehow to life expectancy in the future so that we do not find ourselves having these sort of reforms every few years. This might also be a difficult political sell because people like to know where they stand. However they don't really know where they stand at the moment because it has been increasingly obvious in the last few years that the system will have to change fairly fundamentally, it's just that politicians have tried to sugar-coat it.

I was born in 1974 so any change to the retirement age for men to 70 assuming it kicks in before 2044 (and looking at the outline of the proposals it almost certainly will) will affect me. I am fine with not receiving a state pension until I am 70 though. To be honest having been familiar with the figures for a number of years I was expecting this to happen. If anything the age may be even higher than 70 by the time we get to 2044 after all 34 years is a long time in terms of medical advancements.

One final point. I am very pleased to see Steve Webb as one of the ministers involved in this policy area and the announcements. He is an expert in this and if anyone can negotiate their way through the minefield of pensions policy it is him!


Anonymous said...

I believe that if the pension age is looked at their should be some flexibility.

Workers who do manual jobs often don't make the existing retirement age of 65 because of the nature of their work.

When i was a delivery postman as a young man i used to wonder how my
older colleagues managed what was a very physical job.

Many struggled on because they had to but it needs to be a real consideration in this review.

On the question of public sector pensions again the Royal Mail expirience is informative.

The final salary pension scheme was closed in 2008 and the age
you could take your pension raised
from 60 t0 65 in 2010.

Expect something similar in the rest of the public sector.

John said...

Mark - the point about average age and pension age is slightly wrong. The important figure is not average age of death, but average life expectancy for those who reach retirement age (whatever that might be). That will result in more years to cover in retirement.

Steve R said...

The key figure isn't average life expectancy (for those who reach retirement) but average healthy life expectancy. If life expectancy is grown partly by increasing the length of time one is housebound at the end of one's life then we can hardly expect the retirement age to track life expectancy.
As we increase the retirement age, we may start seeing incapacity benefit becoming a sort of pre-pension for those not able to work up to the average healthy life expectancy, because of failing health or being in physically demanding jobs.