I was reading a piece earlier today on what could be done about youth unemployment, which incidentally rehearsed the hoary old lump of labour fallacy fallacy (so good they named it twice). This got me to thinking about how the benefits of retirement (i.e. not having to work) and pensions (i.e. not having to starve) are allocated across society.
There was some discussion last year about the class-bias of a universal pension age, specifically around two socio-economic factors. The first is that many manual workers will have started working at 15, and can expect to make NI contributions for 50 years, while many non-manual workers will not have started working till 21 or later (i.e. post-further education). The second feature is the difference in longevity between the classes, which means that the number of years you can hope to enjoy beyond a universal retirement age will differ. According to the Office of National Statistics, this difference amounts to about 5 years for men, though analysis by region shows that this average masks differences of 10 years or more.
Using the ONS data (2006 actuals and trend growth from 1982 onwards), I created a quick model to show the impact of the proposed increase in the state retirement age. To remind you, the plan is for the age to increase from 65 to 67 in 2026/8, and to 68 in 2044/6. I further included a more pessimistic scenario (for which there already appears to be a growing lobby) that sees the latter increase revised up to 70.
What this shows is that the current retirement age of 65, if unchanged (scenario A), would be progressive in terms of the relative gain in retirement years for the bottom of the earnings scale compared to the top. Though the well-off gain more years in retirement due to increased longevity, they're starting from a higher base. The poor see larger gains because their average longevity is closer to the state pension age. What this highlights is the original expectation, dating from Lloyd George's 1908 Pensions Act, that the beneficiaries of state pensions would be few and short-lived. The Act provided for people over 70 at a time when 63% of the population died before 60 (pg 5). The pension was seen as insurance in case you had the "misfortune" to live on into old age, rather than as an entitlement that most could expect to enjoy. Increased longevity means that most people now clear that hurdle.
Interestingly, the planned increases in the retirement age (scenario B) result in a relative growth of retirement years that is the same for the top and the bottom, though again the absolute benefit is greater for the well-off. If the retirement age is pushed further, as some are already advocating, then we end up in a situation (scenario C) where the better-off gain both in absolute and relative terms. In fact, the years in retirement then start to decline at the bottom of the scale.
This highlights the fact that we are looking at two distinct problems here. To date, the focus has been on the pressure that increased longevity will create on pensions. This is often expressed in the hopeful phrase "we're all living longer". The second point, which pension reformers and government have been less vocal about, is that some of us are living longer than others and that this disparity is getting worse. In other words, the second issue is widening inequality.
If longevity continues to increase (and there's every reason to believe that it will), and this happens in parallel with a widening gap in living standards, reflected in bigger differences in longevity by social class, then there is a good chance that the rate of increase of the retirement age, which is universal and therefore a notional average, may be greater than the rate of increase in the longevity of the poorest. In simple terms, the historic growth in the number of years in retirement for the poorest, which has benefited from the male retirement age staying static at 65 since 1925 as longevity increased, will go into reverse.
De facto this means a transfer of wealth (in terms of pension payments) from the poor to the rich. On the face of it, this is pretty repellent, however it's worth noting the degree to which the contributory principle has become diluted over time, and may well be finessed out of existence in the coming years. Consequently, the idea that you are "owed" more may become difficult to establish.