Thursday 3 March 2016

Pensionable age extension - An election loser

Politicians are talking about the necessity of raising the age when people can collect their state pension. The current expectation is that people born after 1978 would be able to collect their state pension when they reached 68 years.

George Osborne thought the pensionable age should rise to 70, but other people think it would have to be much higher. Some think that our increasing longevity warrants a pensionable age of 82.

This will be increased gradually, but people now aged 30 will be expected to work until they stumble into retirement at 82. They will already have worked for 12 years and the prospect of another 52 of servitude is bound to be unwelcome.

A man aged 30 today is expected to live for another 51 years, so the average man will not live long enough to collect his pension. The average woman of 30 has a life expectancy of 85, so her longevity will cost the State three year’s pension. Hardly fair for sixty years of contribution. We think of these contributions as savings for old age, but the Government has used these payments to pay for existing pensions. So there’s nothing in the pot for future generations.

Will people accept these changes?

The large number of people likely to be affected makes this move a vote loser for the political party responsible for its initiation. In the end, this may only be a red herring to introduce a new retirement age of 70.

And there’s another reason for watering down these proposals. Employers may baulk at the retention of so many elderly staff who may earn more than young entrants and who are less able to cope with technological developments. What if unemployment amongst the elderly rises and unemployment payments fill the space intended for by wages?  

Also increased longevity doesn’t necessarily imply good health. Many chronically ill individuals will have to be paid sickness benefits.

It may be that the very prospect of a delayed start to retirement will spur the growth of private pension provisions. We currently save less than 5% of income for our old age. Financial experts think the ratio should be more like 15%. But the Chancellor is sending the wrong signals with tax caps on pension pots over £1.25 million. Pensioners also pay tax on the residue of their funds after the tax free portion is deducted. 

Mr. Osborne and his successors must devise better incentives for people to save because the State cannot provide in the way William Beveridge anticipated all those glorious years ago.

Perhaps Neil Kinnock was right when, on the eve of the 1983 general election, he warned us ‘not to get old’.

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