You’d think that after decades of active participation in the labour market your just reward would be to be able to sit back and enjoy a leisurely retirement at age sixty or sixty five. Not any more. According to the preliminary findings of former CBI boss John Cridland, people joining the workforce today may find they are obliged to work till their mid-seventies — or later — in order to qualify for their state pension. Why is this happening and how did Mr. Cridland arrive at that conclusion?
From April 2028 the state retirement age will be the figure set after the review is published next May.
Current retirement policy
While retirement at age sixty five used to be compulsory, most people can now work for as long as they wish. For many of us, this is great; they can’t be discriminated against any more by being forced to retire against their will. However, those of us who wish to rest on our well-earned laurels are increasingly finding that the cost of living obliges us to continue working whether we want to or not, in direct competition with younger people.
Encourage people to work for longer
In a report commissioned by the Department for Work and Pensions in 2015, Dr. Ros Altmann CBE stated:
Contrary to popular myth, the evidence shows that keeping more older people in work actually improves employment prospects for younger generations, and has in some cases even increased their wages. There is also a clear business case as the ageing workforce is already starting to cause skill shortages in certain sectors which will only worsen in future years if the most experienced workers retire as before. A fuller working life can also give individuals the chance to have the retirement they choose as well as the other social and psychological benefits that working provides. So encouraging later life working is good for the economy and good for individuals – and it is also good for business.
Those who have more spend more
Dr. Altmann assumes a mostly healthy worker with a range of options and the choice of whether to retire now or later on. She continues:
Early retirement might be sustainable if younger generations had the capacity to fund ever-rising numbers of economically inactive members of society, or if the older generations had prepared for a far longer retirement. However, neither of these factors can be relied upon.
The younger generations are far less numerous than the baby boomers who are now reaching their late 50s and 60s, and there has been insufficient financial preparation for much longer periods of retirement. With defined benefit pension schemes, the burden of support falls on employers rather than individuals, but most schemes in the private sector are now closed. As pension provision moves to less generous defined contribution pensions, millions of older people will not be able to rely on a decent level of later life income, especially as annuity rates have fallen and investment returns have not met expected forecasts.
…Enabling those who want to keep working in later life to do so, can mean higher lifetime income for millions of people, more output in the economy and higher spending power in the longer term, which will mean higher economic growth and better living standards for all of us.
We have a revenue problem, not a spending problem
She gave the game away here: there’s not enough money in the national pot (or private pots) to keep on paying out money to pensioners who have the audacity to live longer than their forefathers did. Have you noticed that comment about spending power bringing economic growth? It bears repeating:
…higher spending power in the longer term, which will mean higher economic growth and better living standards for all of us.
What this means is, when people spend more, more jobs are created to serve them (and collect that money!), which means more tax revenues including National Insurance, which pays for pensions and the NHS. If that is all it will take to avert a fiscal time bomb when this generation reaches retirement age, why is the government not raising the minimum wage and pegging taxation to spending?
The minimum wage V the living wage
The received wisdom in our government and among the main parties is that policies must benefit business to benefit the people, rather than the other way around. The prevailing consensus has been in place since the days of Thatcher and is so entrenched that anyone who questions it is immediately dismissed as a loony leftist (I’m not, I’m conservative) and the conversation is shut down before it begins. The government’s new minimum wage premium for over 25s of £7.20 per hour will come into force across the UK in April 2016. This discrimination against younger workers by denying them the same amount as older workers will result in lower tax contributions from them with less to pay towards their pensions when they’re older. Meanwhile, companies will no doubt discriminate against older workers because it’s cheaper to hire younger ones.
The Living Wage Foundation announced on Monday 2nd November that there are more than 2,000 accredited Living Wage employers across the UK, double the number of accredited businesses from November 2014. Accredited Living Wage employers pay their staff at least the new voluntary Living Wage rate of £8.25 per hour (formerly £7.85) which is higher than the national minimum wage of £6.70 per hour, and the new minimum wage premium for over 25s of £7.20 per hour that will come into force across the UK in April 2016.
That some employers are raising their employees’ wages to a higher level voluntarily is to be applauded; those employees contribute more to their own pension pots and are less likely to endure poverty in their old age. This also increases revenues for the public purse. However, that number needs to massively increase until government policy catches up. This will be an uphill battle for as long as employers consider paying their employees a necessary evil. It’s not. I recommend working to raise awareness of the benefits of legislation to make the living wage and the national minimum wage the same amount for all workers over 18 years of age to prevent exploitation of younger workers and discrimination against older ones. The benefits to the economy will soon add up and best of all, the national pension pot will soon fill up with all the extra contributions.
If any economy is at full employment, it's Japan's. So why is productivity growth so slow? Where is Verdoorn's Law?? pic.twitter.com/3T2axfDvvH
— Noah Smith (@Noahpinion) March 3, 2016
According to Reuters, there’s not enough demand., i.e. people have tightened their belts and are trying not to spend more than they need. In a consumer economy, this causes problems:
Faced with a flagging economy, Japan is laying the groundwork for new government spending to pre-empt any weakness in household consumption, which would add to its already heavy debt burden.
…Tan said continued yen strength could remove the external support, such as the receipts inbound tourism bring in, which Japan’s budget balance enjoys. If domestic demand and inflation are unable to make up for the loss of this external support, the fiscal balance could again deteriorate and pose a credit negative factor in the long run, he added. – S&P: Large Japan economic stimulus would raise concerns, by Shinichi Saoshiro for Reuters
Most of the Western economies are in the same boat: middle-income wages are stagnating, the lower-end wages aren’t enough to live on, and the very rich aren’t paying their share of the tax burden. Result: there’s not enough tax revenue coming in to cover our costs. This begs the question, “Why not at least raise the minimum wage and tax rates to bring in enough money to pay for what we need?” The answer isn’t terribly comforting: it’s ideological Holy Writ. Basically, they can’t just follow the evidence to its logical conclusion for fear that this would mean they wouldn’t be Tories — or “proper” capitalists — any more.
What can we do?
Our current anti-austerity rhetoric tends to be based around notions of class war, complaints about the impact on the poor and vulnerable, and complaints about the growing disparity between the very rich and the very poor. The trouble is, the outdated ideology is divisive and puts off potential allies, the public is being encouraged to see the poor and vulnerable as parasites who are probably exaggerating their woes, and the disparity between the rich and the poor is being recast as envious people wanting to confiscate wealth on the grounds that the rich have it and they don’t. We need to stop being so confrontational about it and learn to speak fluent Tory.
Middle-income earners are the backbone of the country. Proportionally, they pay more tax than anyone else so allowing their wages to stagnate is counter-productive, even if you’re determined to pare the state down to the bone, leaving only the Royal Family, the armed forces, and the surveillance apparatus intact; these things still have to be paid for. Besides, “letting them keep more of their own money” simply means that those publicly-funded services they rely on have less funding and are cut. This ends up costing hard-working families more than if they pooled their resources with their neighbours as part of a democratic scheme to provide services for the community, i.e. contributed to publicly-funded services via taxation.
The poor are often hard-working people who have two or more jobs that simply don’t provide enough to live on. Those who haven’t got jobs are often frustrated in their attempts to find work by discriminatory practices. I myself was discriminated against as a temporary worker; it was only when I was given a chance on a decent temp-to-perm opportunity that I was able to overcome the belief that agency workers are prone to seeking new employment opportunities once they have been hired. I’ve worked for my current employer for three years.
Vulnerable people need social care, but government cuts have ensured that they are simply parked on benefits without any assistance , then sanctioned at the slightest provocation. They often end up homeless and begging on our streets. It is possible that in many cases, with the right kind of support, many vulnerable people can be returned to the workforce.
People who speak against redistributing wealth do so from the perspective of a terrified householder fending off a desperate burglar with a homicidal glint in his beady little eye. What they won’t admit is that redistribution is happening now, but the money is flowing upwards. Working people are not envious, greedy, feckless, or lazy. We just want a fair share of the wealth our labour helped to generate; that’s not free money, that’s our money. We earned it. When our employers fail to pay us our fair share of the profits we helped to produce, they are robbing us. That’s free money for them.
There’s not an economist in the world who will deny the truth that increased spending power increases spending, which contributes to higher employment as service providers rush to serve buyers. What they differ on is how to increase spending power. Dropping taxes wouldn’t make that much of a difference per week or per year to the average worker’s take-home wage, and by reducing the availability of publicly-funded services, it creates a shortfall in the individual’s ability to spend on consumer goods, etc., which ultimately harms the economy.
Finally, any policy based on the idea of the free market forgets that there is no such thing as the free market. It is not free, and government policy is seeing to that. The proposed Free Trade Agreements, TTIP and CETA, have protectionist clauses in them that restrict competition and encourage incumbent rent-seeking rather than innovation. First free the market, then make policies based on free market principles. Enacting policies based on principles you have no intention of sticking to in practice will do more harm than good to the economy.
You can email or call your MP using Write to Them, or take the time to meet them in person during their constituency surgeries to discuss this with them. We certainly need to raise awareness of the assault on economic common sense, on the right to fair pay, on our right to dignity and security in old age.