- Our Work
- The Reformer Blog
17 September 2015
Like most European countries, the UK faces a considerable demographic challenge. Even after a series of changes to the State Pension Age (SPA) unveiled by the Coalition, the old age dependency ratio (OADR) – the number of pensioners for every 1,000 people of working age – will increase by 16 per cent over the next 20 years. As Reform has highlighted elsewhere, this trend will erode the tax base and increase age-related spending in the medium to long-term. Indeed, it is the primary reason that the Office for Budget Responsibility has judged the public finances to be unsustainable in every year since its inception.
Continuously increasing the SPA, however, cannot be the only policy response to this problem. As Jeremy Corbyn highlighted earlier this month, life expectancy is increasing faster than “health life expectancy”. We are living longer – but in poorer health. A one-size fits all approach to the retirement age inevitably leaves those with physically demanding jobs more exposed to later life unemployment. This is bad news for two reasons. Unemployment in later life has a negative impact on future retirement incomes, and there is a clear and well-documented link between wellbeing and work.
Corbyn is surely right to bring this issue into the political debate. However his solution – to introduce a flexible pension age for those in manual labour – would come with an eye-watering price tag. The Basic State Pension already costs the Exchequer £91 billion each year, and Hargreaves Lansdown calculates that letting someone retire ten years early could double the cost of their state benefits.
Instead, the Government should focus on helping those in physically demanding jobs retrain. Retraining is increasingly a normal part of individuals’ careers. The labour market is more mobile than ever before: the average worker will now have 11 different employers over their lifetime. But if the Government is to make meaningful progress here, it must address the skills gap experienced by older workers. The European Foundation for the Improvement of Living and Working Conditions recently concluded that, relative to their European counterparts, the UK’s current cohort of older workers suffer from low levels of education, poor qualifications and a lack of transferable skills.
The Government should therefore, as a matter of priority, develop a better understanding of the skills needs of older workers and test different ways of delivering employment services for this group. This should be jointly owned by DWP and the BIS, both of whom would benefit from higher labour market participation rates. Without improved support, further increases in the SPA are likely to lead to increased reliance on working age benefits, adversely affecting the wellbeing of older people and placing additional strain on the welfare state.
William Mosseri-Marlio, Researcher, Reform