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Planning Pensions for the 21 st Century: Meeting the Challenges of an Ageing Society

Planning Pensions for the 21 st Century: Meeting the Challenges of an Ageing Society. Jane Falkingham ESRC SAGE Research Group London School of Economics Ageing Population – Benefit Or Burden? Edinburgh, Scotland 22nd January 2002. Overview.

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Planning Pensions for the 21 st Century: Meeting the Challenges of an Ageing Society

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  1. Planning Pensions for the 21st Century: Meeting the Challenges of an Ageing Society Jane Falkingham ESRC SAGE Research Group London School of Economics Ageing Population – Benefit Or Burden? Edinburgh, Scotland 22nd January 2002

  2. Overview • The challenges of an ageing population: demographic, economic & policy legacy • Pension systems: desirable criteria • New Labour’s pension settlement • Ways forward in the 21st Century

  3. The challenges of an ageing population: demographic context • Increasing proportion of pensioners in the population • 1901 5% aged over 60 • 2001 20%. • 2021 25%

  4. The challenges of an ageing population: demographic context • Increasing proportion of pensioners in the population • 1901 5% aged over 60 • 2001 20%. • 2021 25% • Increasing time spent in retirement • Female life expectancy at age 60 21.3 in Scotland; 22.8 in England

  5. The challenges of an ageing population: demographic context “Old age is the most unexpected of all things to happen to a man” Excerpt from Leon Trotsky’s diary, Mexico 1935. • The normalisation of old age means it is no longer a ‘risk’ to be insured against

  6. Changes in Working Life: Proportion of men in employment by birth cohort % Age Source: Evandrou and Falkingham, 2000.

  7. The challenges of an ageing population: economic context • 1 in 3 people aged 50 to retirement age are not in employment. • The proportion of men aged 50-65 not in employment has doubled since 1979.

  8. The challenges of an ageing population: policy context Changes in the welfare mix

  9. The challenges of an ageing population: policy context Changes in the welfare mix • A devalued basic pension

  10. The challenges of an ageing population: policy context Changes in the welfare mix • A devalued basic pension • Growth in occupational pensions

  11. Current membership of occupational pension scheme by sex and socio-economic group (%) % Source: General Household Survey 1998

  12. The challenges of an ageing population: policy context Changes in the welfare mix • A devalued basic pension • Growth in occupational pensions • Personal pensions • Individualisation of risk

  13. The challenges of an ageing population: policy context Changes in the welfare mix • A devalued basic pension • Growth in occupational pensions • Personal pensions • Partnership in pensions’ state:non-state balance to shift from 60:40 to 40:60

  14. Rising Pensioner Incomes:Average gross income, 1979 and 1996/7 Source: Table A1 The Pensioners’ Income series 1999/00 Note: all figures July 1999 prices

  15. Rising Inequality:Median net income of pensioner couples, 1979 and 1996/7 Source: Table A13 The Pensioners’ Income series 1999/00 Note: all figures July 1999 prices

  16. The challenges of an ageing population: pensioner poverty • Over a quarter of pensioners have incomes in bottom fifth of the income distribution • 38% of single female pensioners and 81% of married female pensioners have gross incomes of less than £100 per week • Single female pensioners have the highest risk of experiencing persistent poverty

  17. The challenges of an ageing population • More older people, living longer • Shorter working lives • Greater diversity, growing inequality • Changing pension mix, increasing individualisation of risk

  18. Pension systems: desirable criteria • Adequacy • Administrative efficiency • Affordability • Equity • Political sustainability • Protection of incentives • Transparency Any reform involves a trade-off between these criteria.

  19. New Labour’s pension settlement

  20. New Labour’s pension settlement

  21. New Labour’s pension settlement: delivering adequate incomes?

  22. New Labour’s pension settlement: delivering adequate incomes? Today’s Pensioners • Focus on Minimum Income Guarantee • Extension of means-testing

  23. New Labour’s pension settlement: delivering adequate incomes? Today’s Pensioners • Focus on Minimum Income Guarantee • Extension of means-testing • Problems of take-up

  24. New Labour’s pension settlement: delivering adequate incomes? Today’s Pensioners • Focus on Minimum Income Guarantee • Extension of means-testing • Problems of take-up • Problems of incentives to save

  25. New Labour’s pension settlement: delivering adequate incomes? Today’s Pensioners • Focus on Minimum Income Guarantee • Extension of means-testing • Problems of take-up • Problems of incentives to save • Pension Credit • Another layer of complexity

  26. New Labour’s pension settlement: delivering adequate incomes? Tomorrow’s Pensioners • State Second Pension

  27. New Labour’s pension settlement: delivering adequate incomes? Tomorrow’s Pensioners • State Second Pension • Target group < £10,000 per annum

  28. New Labour’s pension settlement: delivering adequate incomes? Tomorrow’s Pensioners • State Second Pension • Target group < £10,000 per annum • ? Adequacy In 2050, BP+ S2P > MIG by £1

  29. New Labour’s pension settlement: delivering adequate incomes? Tomorrow’s Pensioners • State Second Pension • Target group < £10,000 per annum • ? Adequacy In 2050, BP+ S2P > MIG by £1 • ? Incentives & means-testing

  30. New Labour’s pension settlement: delivering adequate incomes? Tomorrow’s Pensioners • State Second Pension • Target group < £10,000 per annum • ? Adequacy In 2050, BP+ S2P > MIG by £1 • ? Incentives & means-testing • ? Equity

  31. New Labour’s pension settlement: delivering for the next generation? • ? Transparency

  32. New Labour’s pension settlement: delivering for the next generation? • ? Transparency • ? Political sustainability of: • a system of separate and incoherent elements • a system targeted on the lifetime poor • a system designed without due regard to the future

  33. Ways forward in the 21st Century • Pensions policy is the oil tanker of social policy • Need a system to deliver for both today’s pensioners and tomorrow’s • Go ‘back to basics’ • Think the unthinkable

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