The inconvenient truth preventing extended working lives

Craig Berry from the TUC explores the truth about the problems and issues with older workers and their pension.

 

In advance of yesterday’s Congress debate on the state pension age, the TUC published new research on the group of people approaching retirement who will in future be affected by state pension age increases.

The research concludes that although a state pension age may be good, nominally, for the country’s balance sheet – which explains why the coalition government plans to accelerate the timetable for increases established by the Pensions Commission in 2005 – it will fail to provide the economic boost the government is expecting unless later retirements can be achieved in practice.

And while spending on the state pension will fall (or rise more slowly than it otherwise would) the fiscal benefit is also dependent higher tax revenues from older people working for longer. On top of this, if actual retirement ages do not rise in line with the state pension age, additional spending on working-age benefits will be triggered to fill the gap.

We already knew that increasing state pension age was unfair. Variations in life expectancy and healthy life expectancy based on geography and wealth mean people from more affluent areas spend a higher proportion of their life in retirement, and a higher proportion of their retirement in good health, than people from more deprived areas.

Yet the sheer scale of worklessness, most of it involuntary, among people approaching state pension age, means the policy may also prove to be a case of wishful thinking.

New research (xls) by the TUC using ONS data on the group of people just below state pension age (men aged 60-64 and women aged 56-60), underlines the scale of the challenge. The employment rate for this group is below 60 per cent, and the vast majority of those out of work are economically inactive rather than seeking work.

The recent news that record numbers of people are working beyond state pension age was welcome insofar as it demonstrated the capacity and willingness of many older people to remain active in the labour market. But it may be a sign too of the financial pressures many older households face. And given more than 60 per cent of those working beyond state pension age are women, it is not a trend we should necessarily expect to continue as the female state pension age rises rapidly over this decade from 60 to 66.

Our main concern, in any case, should be those just below state pension age that are unable to work, and could therefore face increased hardship in the future. They are stuck in what we call a ‘limbo zone’ between work and retirement. Indeed, the research shows the main reason for inactivity among this group is disability and long-term illness.

Furthermore, it is people formerly working in skilled trades, heavy industry and low-skilled jobs who are most likely to be inactive for this reason. In contrast, it is those from professional occupations – and to a lesser extent senior managers, directors, and officials – that are more likely to be inactive due to early retirement. Longer working lives will clearly be harder on some socio-economic groups than others.

The extent of hardship currently being experienced is to some extent being masked by the Pension Credit Income Guarantee, a means-tested pensioner benefit available to both men and women at female state pension age: 13 per cent of men aged 60-64 are in receipt of this benefit, equivalent to nearly a third of the economically inactive. This safety net will disappear as the eligibility age rises.

There are some out-of-work older people actively seeking employment. But nearly half of those classed as unemployed in this group have been unemployed for at least a year. This is a problem that affects men in particular. Almost a third of unemployed men in this age group have in fact been unemployed for two years or more, and almost one in eight have been unemployed for four years or more. The likelihood of returning to work in later life after a sustained period of unemployment is remote.

The value of older people in the workforce should of course be appreciated. We know that many older people not in employment would like to be able to work, and by focusing on tackling age discrimination and enabling flexible working, the government could be supporting them to do so. It is vital older unemployed workers are able to access high quality employment support. But at a time of high youth unemployment, forcing people just below state pension age – many of whom have health problems or disabilities – to comply with tight Jobcentre Plus requirements is a poor use of resources.

It is addressing health inequalities, not raising the state pension age, that will enable more people to work for longer. This wider agenda will also have a dramatic, positive effect on the country’s economic performance, as demonstrated by 2009 research funded by the Cabinet Office.

Yet the self-defeating insistence on short-term cuts in public spending is getting in the way.

2 Responses to “The inconvenient truth preventing extended working lives”

  1. Nick

    You’re still deluded.

    The reason is quite simple. Government has hidden all the pension debts off the books. We know that on the other side there are no assets to back up these debts. So talk about pension age is just talk about how to defraud the public out of their pensions. Just like Maxwell.

    If a median worker had invested their NI in the FTSE they would have had 19K a year, RPI linked joint life, from 65. That is because their fund is so high. A direct result of compound interest. The state pension is in effect a 75% tax on someone who earns 26K a year when it comes to their pension, and now you are talking about doing them out of more money.

    Now for the discrimination against people who are poor, and so live shorter lives. The state pension does them in too.

    The solution is this. Put NI into a pot in their names. On death, the pot or what remains goes into the pots of their heirs. That way, if they live a shorter time, the money isn’t given to someone else. Since being poor tends to run in families, their heirs get a bigger pot to start.

    All that is then needed is a state insurance scheme that if people’s pots run out before they die, then they get the help they need. Very cheap because for most people, that won’t be the case. It’s just in time, because its a once of check for a small number of people. The payouts are minimised because it will be just for people who are old, so the payouts relatively small because their life expectancy at that age is reduced.

    However, since its a Ponzi, you will carry on ripping people off, and you will default.

  2. Newsbot9

    As usual, it can only be a “Ponzi” if you cut off new payers. You’re simply determined to punish the 99% for existing, and ensure that retirement is abolished.

    As usual, you lie about the rates…they would have have 2.6k, at best. You apply no fees, try and apply the entirety of NI to pensions…so many other factors which don’t support your position.

    Of course you want to withdraw the NHS and state pension. That way, they can end up spending far more on your private companies, and like Singapore end up in a situation where they can’t afford to retire.

    (Then there’s also the effect on what remains of social housing funding, etc. – pushing up the poverty premium even more)

    And then you want to force them to pay massive amounts of cash on “insurance”, which would be no less than 5% of income at even very “reasonable” assumptions, for the rich. The poor would end up with a termination deadline after which they’re thrown out in the street to starve in their old age, should they try and retire.

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