There is an election coming, so reforms that harm the finances of older voters are off the table.
The over-50s dominate participation in local polls even more than they do in general elections, so it was little wonder that a proposal to bring forward the date when the state pension age starts to rise to 68 – adversely affecting millions of people born in the 1970s – was considered toxic by the government and kicked into touch at the end of last month.
A delay of at least two years before the plans for the pension age could be reconsidered was described by the pensions minister Mel Stride as “appropriate” now that people are dying younger, on average, than pre-Covid forecasts had expected.
Stride might more accurately have said the delay was politically expedient, with a view to preventing a total meltdown of the Tory vote in council and mayoral elections next month across England, and in the general election next year.
Yet retirement is a crucial topic that ministers must debate, and not just because it represents a huge and growing cost to the state. Just as pressing is the likelihood that the wrong kind of reform will increase inequality and not ease it, both among those who are retired and between generations.
An independent report, written for Stride and published alongside his decision not to bring forward the pension age rise, highlighted the cost to the public purse.
It said spending on pensions, health and social care, currently 15.1% of GDP, will rise to 25.6% by the 2070s as the number of pensioners increases from 12 million to 17 million.
The report’s author, Lucy Neville-Rolfe, a Conservative peer, said she agreed with a government aim to limit the rise in state pension costs over the same period from 4.5% to 6% of GDP. She backed an increase in the retirement age to 68, but said she was concerned this would disproportionately hit workers who were already ill or disabled in their 60s, forcing them to remain on benefits for several more years.
Without spelling out a specific policy response, she suggested the government should investigate how those who had started work in their teens could retire earlier.
This would introduce a modest level of compensation for a wrong that has developed following the dramatic increase in the number of people going to university over the past 30 years. A 21-year-old graduate retires at the same age as a 16-year-old school leaver under the current system, despite the school leaver having worked an additional five years. Other countries set a limit on the number of years of national insurance that a worker need pay before claiming their state pension, and so could the UK.
A larger and more important element of inequality arises from a reliance on private schemes to fund retirement. The UK depends on occupational schemes and private pension pots that are separate from the state. In this way the UK system is more like the US’s than continental Europe’s, where employers mostly pay into a state system that offers retirees a guaranteed income.
Pension assets account for 120% of UK GDP. And though this figure is dwarfed by the US figure of 174%, it is far higher than Germany’s 8% and France’s 12%. The pension lottery in the UK means 10 million private sector workers and 6 million public sector staff (past and present) are covered by defined-benefit pension schemes – offering a guaranteed sum linked to a worker’s final or average salary – while everyone else is either counting on a stock-market-linked defined-contribution fund to pay them a retirement income, or have no pension savings, either because they are self-employed, work part-time or consider themselves too poor to save and have opted out.
This disparity between these groups is exaggerated by trends in home ownership. While much of the focus in the housing debate is on housebuilding and the difficulties faced by young people in the private rented sector, probably the biggest trend is baby boomers who have been able to pay off their mortgages.
Official figures show 9.3 million – or 37% of all owner-occupied homes – were owned without a mortgage in 2021, up by 2m from 2012. The huge increase in the number of homes held outright, mostly by older people, means this same cohort of retirees – the ones benefiting from guaranteed occupational pensions – also have a comparatively low cost of living.
It gives at least a third to a half of retirees a level of disposable income that young families can only dream of, and begins to put the UK on a par with Italy and Greece, where grandparents are at the centre of civic and family life because they are the only ones with any money.
Clinging to their pensions, the older generations in Italy and Greece have installed rightwing governments in recent elections. That’s a sign that political parties in the UK are loth to ignore.
