Lord Willetts is President of the Resolution Foundation. He is a former Minister for Universities and Science.
The flurry of debate about pension age is revealing a lot about the shape of the British welfare state – and also about the Conservative Party today.
The Government consults every five years on setting the state pension age. The first review was conducted by John Cridland back in 2017 and now Lucy Neville Rolfe has conducted another one.
The plan was already to raise the pension age from 66 to 67 by 2028 and then to 68 from 2046. The Government may now be considering speeding up the increase from 67 to 68, perhaps bringing it forward into the later 2030s – people need at least ten years notice of any such changes. The reports of this idea have already generated controversy. The main objection is that improvements in life expectancy appear to have stalled, so there is no basis for further increasing the pension age.
This however misses one of the key questions which Lucy Neville Rolfe was asked to consider, which is whether it remains right for there to be a fixed proportion of adult life people should, on average, expect to spend over state pension age.
I submitted evidence to the review challenging the idea that there is only one way to set pension age and that is by a link to life expectancy. There are other candidates such as:
There are not many other spending commitments which exclude all such considerations of cost and demographic pressures. For example, the Conservative Party made a pledge on total spending on education as a percentage of GDP which ignored the growth in the number of school children – so that it meant a reduction in spend per pupil.
If such management of public spending is good enough for educating our children, then perhaps it could also apply to our pensions with a pledge of total spend for pensions, which then has to be divided up differently if there are more of them. If that is not acceptable for pensions, there are other options.
There appears to be a cross-party agreement to ratchet up the value of the state pension by the triple lock. That is relevant to setting pension age. If we want pensioners to enjoy increases in their income higher than the rest of society it seems reasonable to say that we help pay for that by reducing the period in which they can get it.
The possible future adjustment to pensions does not of course affect today’s pensioners. It is actually a burden on today’s young and middle aged. Their taxes are currently going up to pay for today’s pensions – one of the Government’s biggest and most rapidly growing expenditure programmes. But by the time they are old they will be receiving it for a shorter period because of its sheer cost.
The other big issue of course is how long we can reasonably expect people to work for. A white collar worker may be able to keep on going. But if you are doing physical work – and there is still a lot of it around – then this looks much harder. And your life expectancy is likely to be lower anyway.
That means a much better and more active regime for helping older workers find suitable jobs and providing benefits if they cannot. Just as some people will work beyond pension age, so others won’t even be able to work up to it and are entitled to generous support – and there will have to be more of it as pension age rises.
The debate is also dogged by the confusion of pension age with retirement age. In Beveridge’s original Bismarckian model, the pension was indeed triggered by loss of earnings as you retired. If you were not retired you were not entitled to a pension. But Conservatives got rid of the so-called earnings rule in the 1980s, so that receiving a pension does not depend on being retired. There will be many people for whom retirement comes when they can get a state pension, but that is not a legal requirement.
So what is retirement age? It used to have a real legal existence independent of the pension age. There were legal labour market protections against, for example, unfair dismissal. But when you got above the age of 65 you had no such rights, and could be asked to leave employment with no redress.
That default retirement age, in the absence of any other employer policy, was the regime until 2012. The year matters. Britain’s post-war baby boom reached its first peak in 1947, when more than a million babies were born. About a million people reached 65 in 2012 – a record.
So with little fuss and indeed a warm welcome the Government rapidly removed retirement age and extended full labour market protections to older workers. There is no longer an automatic age exemption from unfair dismissal protection. At the same time, the Conservative Party was going through one of its periodic bouts of anxiety about over-regulation of the jobs market and commissioned a report by Adrian Beecroft advocating deregulating the labour market. But meanwhile, it was actually doing the opposite and extending labour market regulation to the older workers not already covered by them.
This reveals something very important about the character of the Conservative Party today. It talks about public spending control, but exempts one of the biggest spending programmes from those pressures. It advocates labour market deregulation but extends labour protections to older workers.
It so happens that these older people are also the Conservative Party’s core voters. So there is quite a gap between what the Party preaches and the higher spending and increased regulation it practises for its own voters. If the Party is to have a more coherent message it needs to bridge the gap between theory and practice.