Will I Be Allowed To Retire?
Craig DalzellThe Guardian published a piece this week saying that as a result of ageing demographics, the UK’s state pension age may have to rise again and that anyone born after 1970 (including me) would not be able to claim a state pension until we’re 71 (under current rules, I will have to wait till age 68) or perhaps even older.This claim is based on entirely false assumptions about how the state pension is funded and we determine whether or not such funding is “sustainable” or not.The book I wrote with Bill Johnston a couple of years ago, All of Our Futures (available here) ended up being a deep and comprehensive study of many aspects of our society that impact and are impacted by age and ageing but the seed of it started as a policy paper about pension reform – in other words, the arguments in the news this week are not new and we’ve already delved into them in considerable detail.
The Rationale for Increasing Pension Age
The basic thesis of almost every article calling for the state pension age to increase is based on a single flawed idea - that workers pay for pensions. Scotland, like almost every country on the planet, has moved through a series of demographic transitions as we’ve developed. You will likely have seen the various shapes of population pyramids in high school textbooks. They start from a state where people tend to have a lot of children but many of them die young and the death rate of adults remains fairly high and few people reached very advanced ages. Though the myth that ancient societies contained no-one aged over 40 wasn’t really true even in the Paleolithic – you were much more likely to die as a child then, but if you did make it to adulthood, your life expectancy from then on wasn’t all that different from any other time up to the industrial period.As countries have developed though, first the death rate – particularly infant and mother mortality – plummeted though the average number of children born remained high and we saw a rapidly growing population and a rising average age.The next stage is a maturation where the number of kids born drops – this is something that my generation came in at the tail end of. I’m one of two children in my family. My parents generation was one of it being common to have 4-5 siblings. Their parents had more like 10 siblings. Along with this, we saw better food, better education, better environment (ish) and better healthcare. This has wiped out a lot of reasons that we would have died in previous eras. Both I and my partner have in the last couple of years survived injuries that almost certainly would have killed us in the age prior to antibiotics, for instance.However this has resulted in the UK reaching the stage of the population pyramid that we never really see in the textbooks – inversion. The global population pyramid is soon going to reach a point where there are more people aged over 60 than there are aged under 16 – in Scotland, this has already happened.So with that context we get to the argument for increasing state pension age. The argument goes that we need to consider the “Old Age Dependency Ratio” or OADR – the number of pensioners we have in society compared to the number of workers. If this number increases (it’s projected to increase from about 300 pensioners per thousand people of working age to about 350 by 2040) then fewer workers will be earning money and paying taxes like income tax and national insurance and then there’ll be less money to pay for the state pension that that national insurance earns us. The “solution”, so these articles go, is that we either have to increase births to create more workers (which won’t work for the reasons that births have declined and unless we’re putting kids into the factories again won’t work fast enough to make a difference), increase immigration (There are excellent reasons to encourage immigration, but it won’t "fix" the OADR because all countries are demographically transitioning as well) or to increase the pension age to convert retirees back into workers and juggle the ratio. It’s a classic example of the measure becoming the target without understanding why it then ceases to be a good measure.
The OADR doesn’t matter
The central thesis – that workers pay for state pensions, either someone else’s or their own – simply doesn’t work in practice in the UK. It might be different if all of us were individually saving for our entire retirement funds (as some of us do in our private pensions – more on that later) but even then, OADR wouldn’t apply on an individual basis beyond whether or not you could save enough during your working life to fund your retirement. Your National Insurance payments do not directly and solely fund the state pension of retired people and nor will future payments fund your retirement. Even though the UK maintains things like the National Insurance Fund that was set up for this purpose, that’s a legacy of accounting rather than a practical reality. The state pension is not “hypothecated” and is, in practice, funded by the same Consolidated Fund that all government spending comes out of and into which all tax revenue ultimately flows.This means that it is perfectly possible to imagine a scenario – perhaps one where the robots have taken a lot more jobs – where the ultimate holders of the wealth created and extracted from the economy aren’t the workers who created that wealth but the folk at the top who captured it. Imagine in that case that rather than income taxes being the largest source of government revenue, wealth and corporation taxes were. Imagine that was sufficient to fund the state pension of everyone regardless of the number of workers. That’s a perfectly realistic scenario (held back only by the reluctance of politicians to tax their own wealth and the wealth of their donors) that would force us to evaluate pension sustainability within a much broader frame of how and where income flows and wealth accumulates in our society and how it can be rebalanced using taxes and public spending – there’s absolutely no reason for us to wait for that imaginary scenario where all work is done by robots for their corporate dragon-lords, we could do that re-evaluation now (and perhaps prevent that scenario from occurring).
till Death Do Us P45
The main danger of the politics of ever-increasing pension age is obviously that many of us may not live to see it. Life expectancy in the UK has stalled and started to decrease as a result of over a decade of politically-imposed Austerity and that is obviously reducing our odds of making it to a retirement at all, never mind a long and active one. As we describe in our book, even when overall life expectancy was increasing, healthy life expectancy has long stalled and in Scotland already sits below the state pension age. Forcing people to work longer and in increasingly ill health is not good for their health, for their working productivity or for society as a whole. This goes double for the poorest, who are often least healthy and work the most physically demanding jobs. The problem with a single state pension age across a whole country is that it doesn’t take into account regional differences or individual circumstances (a fact often lost on the rich and powerful who make these laws and are themselves most likely to be able to live a long and financially secure retirement – or to continue working should they choose to). This said, having regional distinctions in pension age might be tricky to manage and could lead to internal migrations where folk move to wherever they can start claiming earliest.
Universal Basic Income
The solution is to move away from that distinction between “worker” and “pensioner”. We argued in All of Our Futures that instituting a Universal Basic Income that would pay at least equivalent to the state pension (I modelled this in my examination of UBI in 2017, though I’d now argue for UBI to offer something closer to the Real Living Wage) would allow older workers the security to examine their own circumstances. Should their health be poor and declining then they could, for example, choose to drop their working hours or to retire earlier. Should they remain active in their 70s and still wish to work – then they could. This would allow people to control the time and manner of their retirement rather than being forced at the point of penury to keep working through ill health just to make a number on a government spreadsheet look better. In fact, given the state of wages and the exploitative private pension market in this country (one of my private pensions saw all but 65p of last year’s “return on investment” eaten by “management fees” – a story for another time), while I often joke about my own retirement plan being “an independent Scotland with a Universal Basic Income”, I’m not actually joking all that much. The alternative appears to be a United Kingdom in which I simply will not be allowed to retire.