Tag Archives: pensions

Retirement and Pensions: Creative Solutions Required to an Age-Old Problem

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This article was contributed by MSc Governance, Economics and Public Policy student Thomas Boulton. He argues that increases to the State Pension age are sensible, but daring solutions are needed to safeguard pensioners’ living standards and address fiscal deficit.

In 2017, Theresa May attempted to introduce legislation that would have meant the value of an elderly person’s house was taken into account when measuring their eligibility for state funded care. This would have meant many more people having to pay for their own care. The backlash and subsequent backtracking almost cost May the position of Prime Minister. These events serve as an excellent foreshadowing of the likely problems policy makers will face this century. Data on public finances, forecasts in the UK dependency ratio and declining birth rates globally illustrate the emergent need to recognise the threat that demographic aging poses, and that traditional solutions will not be available.

Why we may have to work longer

Put simply, we are living longer, and old age is expensive to the exchequer. Over the last 40 years, life expectancy has increased at a faster rate than the average working life. As a result, the average number of years of retirement a person enjoys has almost tripled, from 5 years 10 months in 1980, to a peak of 16 years in 2014, and 15 years and 5 months in 2018, which comprises almost 25% of their adult life. Whilst nobody would want to begrudge someone a long and happy retirement, the impact retirement has on public finances cannot be ignored. With longer life expectancy, the length of a person’s life at which they are a net contributor to overall public finances begins to diminish.

Source: ONS

At the age of 68, the average person ceases to be a net contributor as a result of retiring and paying less tax, compounded by increased health and welfare spending when they reach their 70s.

Hard choices

Increasing the retirement age alone will not plug the gap. Life expectancy is forecast to continue rising in the UK. More significantly, demographic aging trends suggest increasing the retirement age may not have a significant impact, even if the electorate were to regard the idea of working longer as tolerable.

Source: OECD

Whether we choose to stick to a retirement period of just over 15 years, as in 2018, or maintain that a quarter of our adult lives be spent in retirement, people born in 1990 could still expect to be working in 2060. However, this would only leave public finances a little better off than they are now, given the forecast in the old-age dependency ratio.

Source: ONS

Birth rates and net migration

One straightforward solution to the dependency ratio is to increase the number of people in the country between the ages of 22-68. Easier said than done. Birth rates are in decline both in the UK and in all of the countries where the UK’s migrant workers have historically originated. This should leave today’s policy makers wondering where tomorrow’s migrant workers will come from.

Source: World Bank

Private pensions and productivity

One recent policy success has been the institution and uptake of workplace pensions, which will mean many fewer people will be reliant on the state pension. The possibility of withdrawing the state pension for those with large private pensions, and other benefits such as free TV licences may be politically tolerable, if framed in a redistributive way. Other than that, policy makers will have to find ways of ensuring tax receipts can increase, while also enabling higher birth rates. Given the further deterioration of public finances post pandemic, the solutions will have to be creative, and implemented more urgently than foreseen by Theresa May. Above all, they will have to be put forward to the public much more convincingly.

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India fights for a pension: a campaigning success story

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This post was written by Dr Penny Vera Sanso, a Senior Lecturer in Development Studies and Social Anthropology in Birkbeck’s Department of Geography, Environment and Development Studies. It was originally published on the Age International blog.

India is home to around 104 million people aged over 60. Despite producing at least 50% of India’s GDP and despite contributing to the 4.5% growth rate – 90% of workers in India are trapped in low paid, insecure and pension-less work.

So, it is good news that, after many years of side-lining, social pensions are again on the political agenda; appearing on the manifestos of several national and regional parties.  This is a giant step forward.

India is a deeply divided and unequal country, but if you want to see another side to India, one promoting collaboration across socio-economic and cultural diversity, and one that is likely to have a positive outcome for older people, you would be hard pressed to find a better example than the campaigns that are pressing for a pension revolution – the Pension Parishad and the Right to Food Campaign.

A side of India that doesn’t hit the headlines

In March this year, the 5th National Convention of the Right to Food and Work Campaign was held. Over 2000 people participated from across the country.

It is a side of India that rarely hits the headlines; a side where differences of caste, class, religion, education, gender, age and able bodied-ness make no difference.

Held outside Ahmedabad in the grounds of the Dalit Empowerment Centre, a training centre for India’s most stigmatised castes, the Right to Food and Work Campaign transformed unpromising scrubland into a colourful covered meeting place for people to come together to discuss their concerns and formulate solutions on which all would campaign. I participated in the Pension Parishad workshop where almost all participants were women. When asked where the men were the women answered, as one, ‘At the food ration workshop’. And this was where I found them  – a perfect demonstration of how people were ensuring that they covered as much common ground as possible by participating in the framing of strategy and taking it all back home to their local organisations.

But this convention was just one of the proud moments of a campaign which began its journey many years earlier.

How did it start?  

First, in 2001 an extraordinary alliance of diverse groups and individuals came together to support each other in a common effort to secure basic human rights – that of the right to life and dignity for everyone in India.

Then at the 2010 Convention of the Right to Food and Work Campaign a unanimous decision was reached to campaign for a universal social pension. This spurred the development of the ‘Pension Parishad’ – a further network of NGOs and individuals focused on securing a universal social pension set at half the minimum wage.     

This led to thousands of older people across the country participating in rallies, but they were not alone.  They were joined by, and themselves supported, campaigns for widow’s pensions, disability pensions and pensions for sex workers and transgender people.

A comprehensive, cradle to grave campaign

The Right to Food Campaign uses all democratic means available to secure widespread support for the right to food and work and, latterly, the right to pensions. The Supreme Court has been moved (in both senses of the word), political parties lobbied and the media engaged.

Alongside this have been specific campaigns – to extend the public distribution system (that provides families with subsidised basic foods) and to enforce schemes supporting breast feeding and free cooked mid-day meals for school children and older people.  This has created a comprehensive, cradle to grave campaign to overcome endemic hunger.

There’s much to be learnt here but what I like best is: first, that despite deep social divisions people will come together to fight for their own and each other’s rights and second, that older people are willing and capable of fighting for their own and others’ rights.

Dr Penny Vera-Sanso has been researching and publishing on age, gender and poverty in India since the early 1990s. Recently she has been exploring visual methods for sharing research with non-academic audiences and of encouraging popular participation in research projects in order to spur public debate.  Her collaboration with The Hindu on the National Photographic Competition on the Working Elderly resulted in a unique permanent on-line gallery of nearly 3000 photographs of older workers from across India.  She has made two documentaries, We’re Still Working and The Forgotten Generation,  released in 2013 and her photo essay, ‘We too Contribute’, has been displayed as pop-up exhibitions across India.  

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Austerity under Thatcher and the Coalition: the second time as tragedy

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By Professor Deborah Mabbett, who will be delivering her inaugural lecture this evening, 8 November 2012.

In 1979, a new government came to power in Britain determined to rein in public spending and set the economy on a new path led by private innovation and enterprise. Sound familiar? There are certainly some parallels between the Thatcher government and the current Coalition, but there are also some puzzling differences. Take social security. Both tried, or are trying, to cut back this unloved area of government spending, but their cuts are quite different. Thatcher cut back the state pension, but more or less maintained the safety net of means-tested benefits. The Coalition has targeted many parts of the means-tested system for cuts, while the state pension is to be protected with a ‘triple lock’: indexed to the best of wages, prices or 2.5%. Thatcher’s policy was based on the philosophy that the state should provide a minimal, residual safety net, and the private sector would do the rest. But what philosophy guides the Coalition’s pattern of cuts?

The answer shows something important about the relationship between the government and the financial services sector. Under Thatcher, this sector was not only the great hope for the deindustrialised British economy; it also had a key role to play in privatising welfare. Council tenants exercising their right to buy would get their mortgages from the newly-liberalised building societies, while workers would entrust their pension contributions to investment funds which held out the promise of good returns, albeit reduced by large fees.  Twenty-five years on, the government was forced into a dramatic bailout of the financial system. Less noticed, it is also locked into supporting privatised welfare in expensive ways.

Problems with privatised pensions have been apparent: mis-selling, fraud and high fees have afflicted the sector. The government’s response has been to tighten the regulatory framework, while continuing to encourage contributions with generous tax incentives. Regulation was the price of making finance the agent of the government’s plans: private pensions had to be made to work, and if they didn’t, the government would step in to ‘correct’ the market.  Regulation was seen as a burden by the financial sector, but it could also be costly for the government, as the Equitable Life case showed. Equitable Life made commitments to its policyholders that it was unable to honour: the government ended up having to compensate policy-holders for ‘a decade of regulatory failure’. The failings of private sector agents could come back to bite the government.

Indexing the state pension only to prices meant that it failed to keep up with rising living standards. This was intentional: the idea was that private pension provision would expand to fill the gap. For those who lacked a private pension top-up, means-tested benefits were available. However, the rise of means-testing conflicted with the aim of expanding private provision, because workers can contribute to a pension scheme and then find that state benefits are reduced. While successive governments tried to mitigate the effects with various allowances and tapers, it remained the case that pension contributions could bring a very small return in increased retirement income.

The decision to adopt ‘automatic enrolment’ made it a necessity to do something to restrain means-testing. This policy aims to boost private pensions by relying on workers to accept ‘defaults’ in market transactions rather than actively evaluating their options. The problem with this type of ‘nudge’ is that the nudger must be quite sure that the default is in the interests of the worker. In short, the government must make private pensions pay. The triple lock on the state pension is one step towards this, as it should slow down the growth of means-testing.

Is there any alternative? A much larger compulsory state scheme would avoid many of the problems with private pensions, but apparently that is politically untenable. What makes it so is the continued power of the financial services sector. Privatisation does not stand for individual autonomy and choice – the contributing worker is a passive figure in pensions policy. Instead, privatisation stands for making policies for the financial services sector, protecting its role in provision. The result is inefficiency and expense, complex regulation and a high risk that the government picks up the tab in the end.

The Thatcher government sowed the seeds of a private welfare sector, and the Coalition has reaped an unwelcome harvest. Privatising welfare has locked government and finance into a tight embrace which neither desired but neither can bear to leave.

Watch the “P is for politics” video series produced by our Department of Politics.

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