Why Raising The Pensions Age Makes Such Damn Good Sense
GEORGE Osborne’s announced that he’s going to raise the state pension age and this makes damn good sense. No, not just because we’re all pig-faced Tories who love shafting the poor.
In potentially one of the most far-reaching reforms since the introduction of the state pension in 1908, Osborne will say the pension age for men and women will rise to 70 by the 2060s under a new formula linked to average life expectancy. This means that people born in the 1990s, who are now entering the workforce, will have to work until at least the Biblical life expectancy of three score and ten.
Unfortunately the Guardian’s got it slightly wrong there. It’s the state pension age that will rise, not the private pension age. You can retire at any age you like on your own money: what’s changing is your ability to retire on the taxpayers’ money.
There’s two reasons why this is a damn good idea. The first is simply the cost of pensions. We’re all living longer, life spans are increasing, and yes, we do indeed want the old to be living in comfort. But with more people getting old, more people living more years in retirement, we’ve a financial problem here. There is no investment fund that people have paid into to collect their pensions from. Past national insurance payments have been spaffed on whatever the governments of the day decided to spend the cash on. Which means that we can do one of two things with pensions. Well, one of three, the first being tax everyone more now to give the money to the pensioners. Hands up everyone who likes that idea?
The other two are, either we can make the pension some pitifully small amount and pay if for many years, or we can reduce the number of years we pay it for and make it a better amount. It’s that second that the government is doing.
There’s also another more theoretical reason. The state pension is supposed to be social insurance: insurance against outliving your savings. Think of it this way: if the average lifespan is, say, 75, then it’s rational for you to save enough money while you’re working to live until you are 75. But what happens if you live longer than average? Live longer than the rational amount of savings that you made when you were working? That’s the bit that the state pension is, in theory at least, supposed to cover.
And that’s why Bismark, when he first brought in the old age pension in Prussia, did so at 60 for men: past the average age of death. And Lloyd George did the same in 1909 when he introduced it to the UK. You had to be older than the average age at death in order to get it. And if we returned to that system then you’d currently get your pension at 78 for men and 81 for women. Looking at it that way getting it at 70 seems a bit of a bargain really.
Photo: Spinsters rally in Trafalgar Square, demanding pensions at 55. Date: 12/05/1946