PRIME Initiative

Over the next 20 years the UK’s population will age faster than ever before in its history. There will be 5.4 million more people of pension age - an increase of 45 per cent. At the same time, our working-age ratio is declining. This combination has serious implications for the economy, with proportionally fewer workers supporting the growing number of older retired people.

One measure being implemented by Government from next year to tackle this issue is the introduction of later retirement ages. Through gradual changes in State Pension age (SPA), three million people who would otherwise be able to claim a state pension are being nudged rather hopefully back into the workforce.

This presentation given by PRIME recently (Powerpoint format) highlights the economic impact of these changes - and projects even higher levels of worklessness and poverty among older people if practical measures are not adopted now.

Of the three million workers eventually being removed from pension entitlement by the changes, most are women - in fact in the initial batch all are. We reckon that no more than 40 per cent of the total are likely to be economically active. This means that 60 per cent of the three million will be without a pension - and without a job. And that’s without taking into consideration the impact of the recession, since it’s impossible to say how long that will last.

But it does seem the consequences of changing the pension age haven’t really been thought through. In attempting to solve the problem of financing pension provision the state may only have succeeded in creating different problems elsewhere.

On the plus side, today around one fifth of the over-50 working population are self-employed, and many continuing to work beyond the current state pension age. So there is considerable benefit to the economy to be gained through assisting higher numbers of over 50s into self-employment.

But self-employment isn’t an option for everyone, so there would also need to be other measures to support older workers to remain in or re-enter conventional employment.

Without such action raising the state pension age won’t accomplish much - indeed it may do more harm than good. It’s not enough to put a whole lot of older women and men back into the workforce by administrative fiat. They also need some practical way of making a living.

See also What are the alternatives to a personal pension? on our other site.