useapen
2024-03-03 08:17:29 UTC
The last Baby Boomer turns 60 this year. Many born between 1946 and 1964
have already retired, and millions more will follow in the coming years,
with the number of people reaching state pension age forecast to hit a
record 800,000 in 2028 for the first time. By then the earliest anyone
will be able to claim their state pension will be 67, up from 66 today.
Rising longevity meant that for decades, raising the state pension age was
the silver bullet that helped to defuse Britains demographic time bomb.
But not for much longer.
Until now, a rising age limit has kept the Baby Boomers working, boosting
a jobs-rich recovery in the wake of the financial crisis and keeping the
economy afloat.
It meant politicians could think of paying pensions as tomorrows problem
a long-term challenge of slow-moving demographics that could always be
left to a future government.
But that time bomb is still ticking. And Britains falling birth rate and
life expectancy means its about to explode amid this huge wave of
retirement.
The Telegraph is examining the future of the state pension in a three-part
series that will focus on the implications for work, retirement and living
standards for different generations.
In this first instalment, we look at whether the Government can keep
making the sums add up when the pensioner population is expected to rise
from 12m today to 17m by 2070.
Trouble ahead
The working age population is expected to increase by just over 1m to 44m
over that period.
Already, £1 in every £8 of government spending goes on the state pension.
Fast forward 50 years, and that number will be more like £1 in every £6.
A wave of retiring boomers is expected to push up the pensions bill
dramatically this decade. While raising the state pension age to 67 by
2028 will stem the rise in costs, the Office for Budget Responsibility
(OBR) predicts overall spending on the state pension will be £23bn higher
in 2027-28 than it was at the start of the 2020s. This jump is not
happening within five decades, but five years.
Sir Charlie Bean, a former OBR official, says the world took a global
peace dividend and era of cheap money for granted, spending extra money
with abandon, which is now coming back to bite.
If you go back about 50 years about a quarter of [state] spending was on
health and welfare including pensions. That has risen to about half,
essentially because of these demographic forces - ageing - and also the
nature of technical change in the health sector, he says, noting that
medical innovations are often expensive.
Three things have made room for it. Firstly, declines in public
investment; secondly declines in defence spending [that came with] the
cold war dividend; and thirdly a fall in contribution from debt interest.
Suddenly those have reversed, with serious implications for spending in
the next parliament at a time when money is already very tight.
The OBR believes spending on state pensions will rise from 5.1pc of GDP
this year - or around £130bn in todays money - to 8.6pc of GDP in 2073,
or around £230bn. An older population also means more demand on health
spending, which is set to increase from 8.2pc of GDP this year to 15pc of
GDP.
While a fall in the number of young people will reduce spending on schools
over this period, the surge in older-age costs will swell the state to
more than half the size of the economy, up from 33pc pre-pandemic and an
estimated 38pc by the end of the decade.
Governments have two choices if they want to constrain state pension
spending in the future. Make people wait longer to claim it, or make it
less generous.
Lifes too short
The question of when the state pension age should rise from 67 to 68 has
already been the subject of two independent reviews.
John Cridland, author of the first report in 2017, suggested it should
rise to 68 between 2037 and 2039. Baroness Neville-Rolfe, the author of
the second, said that based on the rule of thumb that people should spend
roughly a third of their adult life in retirement, it should not rise to
68 until 2041-43.
But falling life expectancy has thrown a spanner in the works, forcing
Jeremy Hunt to delay a decision on when to next increase pension age for a
second time.
Advances in healthcare and better working conditions have resulted in four
decades of improving life expectancy. But the rate of increase has slowed,
and not just because of the pandemic.
Life expectancy growth has been slowing since 2011, with pandemic deaths
in 2020 and 2021 sending progress into reverse. Life expectancy is roughly
now back to where it was a decade ago, according to the Office for
National Statistics (ONS).
UK life expectancy at birth is now estimated to be 78.6 years for males
and 82.6 years for females, according to the ONS. Thats 38 weeks fewer
for males and 23 weeks lower for females compared with 2017 to 2019.
Cridland, who wrote the first report for the Government, says: I think
theres quite a lot of evidence that the continuing increase in longevity
is topping out. And that is overlaid by the pandemic, but actually the
signs were already there. If thats the case, then you could argue the
trajectory for further tightening of the state pension, both in age and
support, could become more muted. My instinct is that the days of big
increases in longevity are fading.
There is also the issue of how fit people remain after they retire. The
ONS defines this as an estimate of how much people believe their lives are
spent in very good or good health. And the evidence suggests this is
also in decline, with Scots seeing the biggest deterioration over the past
few years.
Britains not working
Sick Britain has barely been out of the headlines since lockdown, with the
number of people neither in work nor looking for a job currently at a
record high of 2.8m.
A rise in back and neck pain among older workers is partly to blame. The
UK is one of eight OECD countries where at least 20pc of adults aged over
65 report severe limitations in their daily life, according to the
think-tank.
Alongside Denmark and Norway, Britain also has the highest levels of
statin consumption per head in the OECD, and the third-highest use of
antidepressants.
This matters because the state pension is paid from the taxes of people in
work today, so the more people there are in work relative to those
retired, the better.
In 2020, there were around 30 pensioners for every 100 people of working
age. That has already risen to almost 32 pensioners, and will hit 35
before the decade is out the timeline over which financial decisions at
next weeks Budget are being made.
Making people wait longer to claim their pension may seem obvious, but it
also risks widening the inequality gap. A recent report by the Longevity
Centre suggests that people may need to work until theyre 71 before
receiving the state pension to maintain the number of workers per retiree.
If thats the case, the average person in Newton Heath and Moston in
Manchester would die before receiving it. Life expectancy here is just
70.2 years old, compared with 85.6 years in nearby Deansgate.
Healthy life expectancy also varies wildly depending on where you were
born. A man in Rutland can expect to live 75 years in rude health, while
in Blackpool that number is just 54 years.
Even this rapidly worsening picture does not tell us everything.
Looking at the number of people of working age is one thing. Looking at
how many are actually in work and paying the taxes needed to fund the
state pension is another.
The number of working age people who are economically inactive has been
rising, hitting 9.3m at the last count. That is equivalent to 21.9pc of
all people aged between 16 and 64.
Lord Turnbull, a former permanent secretary to the Treasury and cabinet
secretary, says major trends which have helped in past decades are no
longer enough to keep the dependency ratio healthy.
Immigration helps redress the balance, but we are now going through a
phase about where have all the workers gone? There has been this huge
increase in inactivity, he says.
By and large activity had been rising as more women came into the
workforce, but inactivity turned up in pandemic and almost uniquely among
comparable countries, it has not returned to its trend level - it stayed
up.
In particular, he frets that we are the sickest country in Europe,
pushing people out of the workforce and leaving the public purse bearing
the cost of healthcare bills without tax receipts.
Cridland suggests that ensuring the state pension remains fair will
involve tough choices.
He says that within the next decade, if Britain wants to start to put in
place a plan to constrain cost increases without having to rob the health
budget, or rob the education budget or put up taxes, the next logical
thing you would do after deciding when the state pension age goes up,
would in my judgment be to remove the triple lock.
RECOMMENDED
'I spent a week living on little more than the state pension it wasn't
much of a life'
Read more
Lock and load
The policy, which was introduced at the start of the last decade, ensures
that payments to pensioners rise by the highest of 2.5pc, inflation or
earnings growth, whichever is higher.
It is understood that the Conservative Party will put the commitment in
its election manifesto.
A Tory source said: The triple lock is a Conservative Party creation, has
been in every Conservative Party manifesto since we introduced it, and we
will commit to it again.
Labour signalled it would do the same and challenged the prime minister to
put the commitment on record.
Rachel Reeves, the shadow chancellor, says: The difference between being
in retirement and being of working age is that when youre in retirement,
it is very difficult to increase your income. And so I think that
stability and certainty that your income is protected is important.
Weve always supported the triple lock.
A Labour spokesman added: The Labour Party will always stand up for
working people to have a fair, decent pension and financial security in
retirement.
Rishi Sunaks government has previously broken their promise to
pensioners and now need to be clear about their intention to maintain the
triple lock, to ensure pensioners incomes dont fall behind what is
needed to give them a decent standard of living.
Pensions minister Paul Maynard describes the state pension as a safety net
for millions of people.
I want to ensure the State Pension remains the foundation of income in
retirement for future generations in a way that it is sustainable and
fair, he says.
This Government introduced the triple lock to do just that, and since
2011 weve lifted 200,000 older people out of poverty. With the full rate
of the new state pension rising to £11,500 in April this is vital
additional money for our hard-working pensioners who rely solely on this
income.
We are taking long term decisions to build a brighter future for millions
one that delivers for the pensioners of today and tomorrow.
But not everyone is a fan of the triple lock. Peter Lilley, a former Work
and Pensions Secretary, describes it as absurdly generous and
unsustainable in the long-term.
He adds: Why pensioners should get an increase when neither prices are
going up nor wages are going up is absurd.
Lord Turnbull says the triple lock is daft, but terrifically difficult to
get rid of.
When we get a shock, an output shock or a prices shock, you suddenly find
you have significantly made the pension more generous, he adds.
But it wasnt a considered decision, it just happened. It is a very silly
way to do it.
The Government is committed to reviewing the state pension age again in
the first two years of the next parliament.
Sir Steve Webb, the pensions minister who helped to introduce the policy,
says its time to look at government spending as a whole to find solutions
to keep the state pension on a sustainable path.
Theres lots of things you can do to make the state pension system more
affordable apart from just hiking the pension age. One of which is making
more people of working age economically active, he says.
The OBR estimates that the total annual tax loss as a result of rising
health-related inactivity and in-work ill-health is likely to stand at
almost £9bn a year. This would be more than enough to cut 1p off income
tax - and keep paying for the triple lock.
Thats a far better thing to focus on than just repeatedly hiking the
pension age, says Sir Steve.
The risk is we think that the solution to the affordability of the state
pension lies exclusively within the state pension system, and it just
doesnt.
There might be more than one solution to the problem. But the state
pensions time bomb is still ticking down and hiding from reality is no
longer an option.
https://www.telegraph.co.uk/business/2024/02/29/uk-state-pension-triple-
lock-time-bomb-explode/?li_source=LI&li_medium=for_you
have already retired, and millions more will follow in the coming years,
with the number of people reaching state pension age forecast to hit a
record 800,000 in 2028 for the first time. By then the earliest anyone
will be able to claim their state pension will be 67, up from 66 today.
Rising longevity meant that for decades, raising the state pension age was
the silver bullet that helped to defuse Britains demographic time bomb.
But not for much longer.
Until now, a rising age limit has kept the Baby Boomers working, boosting
a jobs-rich recovery in the wake of the financial crisis and keeping the
economy afloat.
It meant politicians could think of paying pensions as tomorrows problem
a long-term challenge of slow-moving demographics that could always be
left to a future government.
But that time bomb is still ticking. And Britains falling birth rate and
life expectancy means its about to explode amid this huge wave of
retirement.
The Telegraph is examining the future of the state pension in a three-part
series that will focus on the implications for work, retirement and living
standards for different generations.
In this first instalment, we look at whether the Government can keep
making the sums add up when the pensioner population is expected to rise
from 12m today to 17m by 2070.
Trouble ahead
The working age population is expected to increase by just over 1m to 44m
over that period.
Already, £1 in every £8 of government spending goes on the state pension.
Fast forward 50 years, and that number will be more like £1 in every £6.
A wave of retiring boomers is expected to push up the pensions bill
dramatically this decade. While raising the state pension age to 67 by
2028 will stem the rise in costs, the Office for Budget Responsibility
(OBR) predicts overall spending on the state pension will be £23bn higher
in 2027-28 than it was at the start of the 2020s. This jump is not
happening within five decades, but five years.
Sir Charlie Bean, a former OBR official, says the world took a global
peace dividend and era of cheap money for granted, spending extra money
with abandon, which is now coming back to bite.
If you go back about 50 years about a quarter of [state] spending was on
health and welfare including pensions. That has risen to about half,
essentially because of these demographic forces - ageing - and also the
nature of technical change in the health sector, he says, noting that
medical innovations are often expensive.
Three things have made room for it. Firstly, declines in public
investment; secondly declines in defence spending [that came with] the
cold war dividend; and thirdly a fall in contribution from debt interest.
Suddenly those have reversed, with serious implications for spending in
the next parliament at a time when money is already very tight.
The OBR believes spending on state pensions will rise from 5.1pc of GDP
this year - or around £130bn in todays money - to 8.6pc of GDP in 2073,
or around £230bn. An older population also means more demand on health
spending, which is set to increase from 8.2pc of GDP this year to 15pc of
GDP.
While a fall in the number of young people will reduce spending on schools
over this period, the surge in older-age costs will swell the state to
more than half the size of the economy, up from 33pc pre-pandemic and an
estimated 38pc by the end of the decade.
Governments have two choices if they want to constrain state pension
spending in the future. Make people wait longer to claim it, or make it
less generous.
Lifes too short
The question of when the state pension age should rise from 67 to 68 has
already been the subject of two independent reviews.
John Cridland, author of the first report in 2017, suggested it should
rise to 68 between 2037 and 2039. Baroness Neville-Rolfe, the author of
the second, said that based on the rule of thumb that people should spend
roughly a third of their adult life in retirement, it should not rise to
68 until 2041-43.
But falling life expectancy has thrown a spanner in the works, forcing
Jeremy Hunt to delay a decision on when to next increase pension age for a
second time.
Advances in healthcare and better working conditions have resulted in four
decades of improving life expectancy. But the rate of increase has slowed,
and not just because of the pandemic.
Life expectancy growth has been slowing since 2011, with pandemic deaths
in 2020 and 2021 sending progress into reverse. Life expectancy is roughly
now back to where it was a decade ago, according to the Office for
National Statistics (ONS).
UK life expectancy at birth is now estimated to be 78.6 years for males
and 82.6 years for females, according to the ONS. Thats 38 weeks fewer
for males and 23 weeks lower for females compared with 2017 to 2019.
Cridland, who wrote the first report for the Government, says: I think
theres quite a lot of evidence that the continuing increase in longevity
is topping out. And that is overlaid by the pandemic, but actually the
signs were already there. If thats the case, then you could argue the
trajectory for further tightening of the state pension, both in age and
support, could become more muted. My instinct is that the days of big
increases in longevity are fading.
There is also the issue of how fit people remain after they retire. The
ONS defines this as an estimate of how much people believe their lives are
spent in very good or good health. And the evidence suggests this is
also in decline, with Scots seeing the biggest deterioration over the past
few years.
Britains not working
Sick Britain has barely been out of the headlines since lockdown, with the
number of people neither in work nor looking for a job currently at a
record high of 2.8m.
A rise in back and neck pain among older workers is partly to blame. The
UK is one of eight OECD countries where at least 20pc of adults aged over
65 report severe limitations in their daily life, according to the
think-tank.
Alongside Denmark and Norway, Britain also has the highest levels of
statin consumption per head in the OECD, and the third-highest use of
antidepressants.
This matters because the state pension is paid from the taxes of people in
work today, so the more people there are in work relative to those
retired, the better.
In 2020, there were around 30 pensioners for every 100 people of working
age. That has already risen to almost 32 pensioners, and will hit 35
before the decade is out the timeline over which financial decisions at
next weeks Budget are being made.
Making people wait longer to claim their pension may seem obvious, but it
also risks widening the inequality gap. A recent report by the Longevity
Centre suggests that people may need to work until theyre 71 before
receiving the state pension to maintain the number of workers per retiree.
If thats the case, the average person in Newton Heath and Moston in
Manchester would die before receiving it. Life expectancy here is just
70.2 years old, compared with 85.6 years in nearby Deansgate.
Healthy life expectancy also varies wildly depending on where you were
born. A man in Rutland can expect to live 75 years in rude health, while
in Blackpool that number is just 54 years.
Even this rapidly worsening picture does not tell us everything.
Looking at the number of people of working age is one thing. Looking at
how many are actually in work and paying the taxes needed to fund the
state pension is another.
The number of working age people who are economically inactive has been
rising, hitting 9.3m at the last count. That is equivalent to 21.9pc of
all people aged between 16 and 64.
Lord Turnbull, a former permanent secretary to the Treasury and cabinet
secretary, says major trends which have helped in past decades are no
longer enough to keep the dependency ratio healthy.
Immigration helps redress the balance, but we are now going through a
phase about where have all the workers gone? There has been this huge
increase in inactivity, he says.
By and large activity had been rising as more women came into the
workforce, but inactivity turned up in pandemic and almost uniquely among
comparable countries, it has not returned to its trend level - it stayed
up.
In particular, he frets that we are the sickest country in Europe,
pushing people out of the workforce and leaving the public purse bearing
the cost of healthcare bills without tax receipts.
Cridland suggests that ensuring the state pension remains fair will
involve tough choices.
He says that within the next decade, if Britain wants to start to put in
place a plan to constrain cost increases without having to rob the health
budget, or rob the education budget or put up taxes, the next logical
thing you would do after deciding when the state pension age goes up,
would in my judgment be to remove the triple lock.
RECOMMENDED
'I spent a week living on little more than the state pension it wasn't
much of a life'
Read more
Lock and load
The policy, which was introduced at the start of the last decade, ensures
that payments to pensioners rise by the highest of 2.5pc, inflation or
earnings growth, whichever is higher.
It is understood that the Conservative Party will put the commitment in
its election manifesto.
A Tory source said: The triple lock is a Conservative Party creation, has
been in every Conservative Party manifesto since we introduced it, and we
will commit to it again.
Labour signalled it would do the same and challenged the prime minister to
put the commitment on record.
Rachel Reeves, the shadow chancellor, says: The difference between being
in retirement and being of working age is that when youre in retirement,
it is very difficult to increase your income. And so I think that
stability and certainty that your income is protected is important.
Weve always supported the triple lock.
A Labour spokesman added: The Labour Party will always stand up for
working people to have a fair, decent pension and financial security in
retirement.
Rishi Sunaks government has previously broken their promise to
pensioners and now need to be clear about their intention to maintain the
triple lock, to ensure pensioners incomes dont fall behind what is
needed to give them a decent standard of living.
Pensions minister Paul Maynard describes the state pension as a safety net
for millions of people.
I want to ensure the State Pension remains the foundation of income in
retirement for future generations in a way that it is sustainable and
fair, he says.
This Government introduced the triple lock to do just that, and since
2011 weve lifted 200,000 older people out of poverty. With the full rate
of the new state pension rising to £11,500 in April this is vital
additional money for our hard-working pensioners who rely solely on this
income.
We are taking long term decisions to build a brighter future for millions
one that delivers for the pensioners of today and tomorrow.
But not everyone is a fan of the triple lock. Peter Lilley, a former Work
and Pensions Secretary, describes it as absurdly generous and
unsustainable in the long-term.
He adds: Why pensioners should get an increase when neither prices are
going up nor wages are going up is absurd.
Lord Turnbull says the triple lock is daft, but terrifically difficult to
get rid of.
When we get a shock, an output shock or a prices shock, you suddenly find
you have significantly made the pension more generous, he adds.
But it wasnt a considered decision, it just happened. It is a very silly
way to do it.
The Government is committed to reviewing the state pension age again in
the first two years of the next parliament.
Sir Steve Webb, the pensions minister who helped to introduce the policy,
says its time to look at government spending as a whole to find solutions
to keep the state pension on a sustainable path.
Theres lots of things you can do to make the state pension system more
affordable apart from just hiking the pension age. One of which is making
more people of working age economically active, he says.
The OBR estimates that the total annual tax loss as a result of rising
health-related inactivity and in-work ill-health is likely to stand at
almost £9bn a year. This would be more than enough to cut 1p off income
tax - and keep paying for the triple lock.
Thats a far better thing to focus on than just repeatedly hiking the
pension age, says Sir Steve.
The risk is we think that the solution to the affordability of the state
pension lies exclusively within the state pension system, and it just
doesnt.
There might be more than one solution to the problem. But the state
pensions time bomb is still ticking down and hiding from reality is no
longer an option.
https://www.telegraph.co.uk/business/2024/02/29/uk-state-pension-triple-
lock-time-bomb-explode/?li_source=LI&li_medium=for_you