The number of retired people is likely to rise faster than the number in work, cutting the ratio of workers to dependants 

By: Andrew Hasson  
The Times, March 22, 2001 

FEAR of the growing burden of an ageing population has become an unstated, and unchallenged, factor behind the Government’s pensions policy. Why else should they be prepared to increase state pensions sharply in the short run, but be unwilling to index them to earnings in the longer run — when without such a link, the basic state pension will become increasingly inadequate. 
Population projections are always uncertain, but nevertheless the fact that people are living longer is almost certain to mean that there will be a higher proportion of older people in the population. This is not, however, the same as forecasting that a correspondingly higher proportion of people will necessarily be retired and living on pensions. 

With better health and longer life, more older people will be able and willing to work — provided there are enough jobs, and employers adopt more flexible attitudes to employing them. The conventional projections which underlie so much public discussion of these issues singularly fail to take this into account. They illustrate what could happen if we are content to let things carry on the way they are, not what would be possible if we set out to tackle the problem in a more positive way. 

Current discussion is dominated by the projections of the Government Actuary’s Department (in their last Quinquennial Review of the National Insurance Fund) which forecast that the number of people over the state pension age in Great Britain will rise from 10.5 million in 1999 to a peak of 13.8 million in 2030 (despite the increase in the pension age for women from 60 to 65). 

In comparison the number of people of “working age” will increase from 35.5 million to 36.7 million. But these figures on their own give an exaggerated view of the problem. The real burden of “dependency” reflects the number of people at work relative to all those who are in some sense dependent — this includes pensioners, children and people of working age who are not in jobs. Not sufficient attention has been paid to the fact that the rise in the number of older people over the next 30 years will be partly offset by the decline in the number of children, which is expected to go down by a million. 

In real terms the key point is that the consumption of those not at work has to be met from the production of those who are. The crucial assumption in the Actuary’s estimates is that the numbers at work in 2030 will be 27.2 million or 45.3 per cent of the total population as compared with 27.6 million or 47.8 per cent in 1999. It would therefore need a further 1.5 million people at work to maintain the same ratio of workers to dependants. 

Is such an increase feasible — and, if so, what would we have to do to achieve it? The Actuary’s (professionally conservative) projections take only limited account of the increasing number of women in their late 40s and early 50s who are now working and are unlikely to retire until they are 65; and the estimates assume that a lower proportion of men over 25 will be at work in 2030 than today. They ignore the fact that most of what appears as a “trend towards early retirement” for men represents enforced exit from the labour force because they cannot get jobs. 

This has been well documented in numerous studies and is clearly illustrated by looking at the figures for different parts of the country. If voluntary early retirement were really the dominant factor, you would expect to see a lower proportion of men over 50 working in the more prosperous areas of the country. The reverse is the case. 

In the prosperous South East 79 per cent of men aged 50-64 are economically “active” (ie, in work or officially unemployed) but only 64 per cent in Wales, where there is a chronic shortage of jobs for older men who have lost their jobs in industries such as coal or steel. 

I have made some alternative estimates of activity rates which suggest that, on quite reasonable assumptions, at least 1.5 million more people over 50 could be at work in 2030 than the Government Actuary assumes. The increase would be spread across the country, but with disproportionate increases in areas with relatively low unemployment at present. 

This is possible only if we maintain a high demand for labour and positive measures are taken to increase the number of jobs available to older people. This would involve both more active regional policies to create additional jobs in less prosperous areas, mainly northern industrial areas, and a change of attitude to retirement. 

We need to look again at what are regarded as “normal retirement ages”. If 65 was an appropriate retirement age 50 years ago, is it still appropriate today, and surely not in 30 years’ time? Should not occupational and state pension schemes take this into account? But more fundamentally should we have standard retirement ages at all? I know from my own experience as an employer that it avoids difficult decisions — and have even dodged the issue by re-employing people “part-time” when they “retire”, thus wishing people a “happy retirement” at their official retirement party one evening and saying “good morning” to them again at work the next day. 

The point here is that apart from people remaining longer in their existing jobs, there is plenty of scope for employing older people in part-time or less demanding positions, if they so wish. Flexible employment policies are required not only to meet the demands of family life, but also the needs of older people. Employees who have experimented on these lines have generally found it well worthwhile. 

“Funding” state pension schemes would not, as is sometimes suggested, answer the problem. The consumption of pensioners and other dependants has to come out of the production of those at work; it cannot be stored up in advance. 

Funding provides a means of defining people’s pension entitlements in relation to their contributions, but it does not provide the extra resources needed to meet them. Pensioners’ claims on resources have to be offset by the savings or taxes of those currently at work. In real terms there is no escape from “pay-as-you-go”. 

We should not fall into the trap of assuming that this is some new problem, which has suddenly emerged in recent years. William Beveridge was faced with similar projections more than 50 years ago when writing his classic report on Social Insurance. 

He said: “There is no reason . . . to doubt the power of large numbers of people to go on working with advantage to the community and happiness to themselves after reaching the minimum pensionable age . . . The natural presumption for the increasing length of total life is that the length of years during which working capacity lasts will also rise . . . A people ageing in years need not be old in spirit.”