The chorus of pensions experts in high-income countries have long been singing the refrain, ‘state pension ages should rise’ – people are living longer, pensions are costing more, and the cost can only be brought under control by working for longer too. Understandably many people don’t like this much. But beyond the gut resentment, it is sometimes claimed that this is fundamentally unfair too: it’s fine for wealthier well-educated workers in professional jobs with the option of retiring early, they say, but what about a manual worker with health problems who is likely to die before they reach a raised retirement age?
I’ve always thought this argument was problematic. In this post, I want to argue that it’s completely wrong-headed – and that the fairest approach would be to increase pension ages yet-further, and using the savings to fund a better life for disabled people.
Life, death and retirement
As pensions commentators like to say, this is actually a good news story – people are now living longer, and while researchers continue to argue over this, at least part of this is in good health. Britons on average spend fewer five years at work and ten more years in retirement (twice as long) then they did in 1950. For men, the striking change since 1970 is how much longer they are likely to live when they get to 65, after over a century in which this changed very little (figures from www.mortality.org from 2007).
Despite this surfeit of good news, it’s certainly true that manual workers face a double-whammy when it comes to retirement. As a nice briefing by the Pensions Policy Institute from 2003 shows, manual workers can expect to live about three years less than non-manual workers – being less likely to survive to retirement, and having less time if and when they get there. One Labour MP has noted that a fifth of the poorest men die before 65 , compared to 7% in the highest social group. At the same time, they have greater physical demands which makes it harder for them to continue in their jobs. Life expectancy among manual workers may have been increasing in recent decades, as the Government have claimed, but by less than among professionals – which hardly means that the problem has gone away. Given inequalities in health and working conditions, retirement itself is inevitably inequitable.
What initially baffled me here is the argument that it is a particular problem to raise pension ages. As far as I can see, there will an unfairness in retirement whatever age we set the retirement age to; whether retiring at 50 or 80, there will be more manual workers that die before this age, and manual retirees will have shorter retirements. Having discussed this with people over the years, it seems that the most valuable part of retirement is to have *some* retirement – at least a few years in relatively good health.
But is keeping pension ages low really the best way of dealing with inequities in health and working conditions? It comes with a hefty price tag, and much of it is spent subsidising a ‘Third Age’ for people with a relatively long period of good health waiting for them. Retirement also continues the inequalities from earlier in people’s lives, with some people having considerable financial resources combined with good health, and others having pitiful pensions and struggling with chronic health problems.
If we’re really concerned with fairness in retirement, then we can be imaginative rather than reactionary. I would argue for a substantially raised pension age, where we would explicitly use the money saved to pursue some of the following equity-based ideas:
- A variable pension age – some influential ageing researchers at Oxford University have argued for a retirement age that is lower for people with healthy lower life expectancy, perhaps measured by lifetime earnings. I don’t actually agree that this would be either politically viable or particularly desirable, but it’s a creative idea.
- A disability premium on pensions, beyond current disability benefits – this was suggested at a recent event organised by the excellent Strategic Society Centre (declaration: I’m technically an associate fellow there, but the event was nothing to do with me!). Given that disability creates extra costs for people, we should arguably have a pension that gives people a constant quality of life rather than just a constant income. This would also compensate for the shorter retirements that people with health problems will have, on average.
- Incentives to employ disabled people – if you have health problems that interfere with your work, then you’re likely to achieve less at work and/or be absent more often, and understandably this isn’t very appealing to many employers – and as pension ages rise, this will become more of a problem. While we have the Disability Discrimination Act to stop employers getting rid of people on these grounds, it’s almost impossible to apply this to recruitment. The end result is that people who could work are made unemployable because no-one will employ them. One way of compensating for this is to offer employers incentives to recruit people with health problems, perhaps after they’ve claimed incapacity benefits for a few months. I’ve heard rumours that the Government are considering this, and it would be a welcome step forward.
- More generous benefits for disabled people – currently people on the range of incapacity benefits in the UK have a pretty miserable quality of life, and it’s just about to get worse: brutal medical tests will cast people off the benefit, while anyone with a working partner simply won’t be entitled to incapacity benefits after a year. (To my mind, the single most outrageous step taken by the current Coalition). Giving working-age disabled people a better quality of life would seem one way of compensating them for their lower chances of reaching retirement age, their shorter retirements, and their reduced abilities to save for retirement.
Policy realities and utopias
This argument is fine in principle, you might say, but this isn’t how things work in practice. Currently the state pension age in the UK is rising – the Pensions Commission suggested beginning with a rise to 66 in 2024, and following the recession the Coalition brought this forward by six years and are currently contemplating introducing an auto-rise to reflect rising life expectancy. But at the same time, disabled people have been hit with a plethora of cuts. Money saved in one area doesn’t automatically flow back into a fairer reallocation of funds, particularly where deficit-reduction is the order of the day.
As I see it, the problem is that those concerned with fairness and pensions have drawn the wrong lines in the sand. I don’t think it’s helpful to say that pension ages shouldn’t rise, when there’s such a compelling case that they should – a case that in previous unpublished research, I’ve found that people will grudgingly accept. Instead, the combined forces of those concerned with equality should set forth the conditions under which raised pension ages are acceptable. Otherwise the distant future will see us all working for longer, but with ever-greater inequalities between us – which is hardly the ‘good news story’ we hoped for.