IS LIFE REALLY HARSHER THAN DEATH?:

Harsh choices: A major shake-up in British pensions is coming—but not until after the election (The Economist, 10/14/04)

DENIAL is government's first response when pensions policy goes wrong. The Labour government has been no exception to this rule. But a landmark report this week from the government-appointed Pensions Commission has made denial impossible. Labour will put off difficult decisions until after the election expected in May next year. But a third-term Labour government will have to undertake painful reforms.

The report sets out inescapable choices that must be made as Britain, like other developed countries, confronts a rapidly ageing population. At present, 10% of GDP is transferred to pensioners. This will have to rise by 2050 to 15% if future pensioners are to enjoy the same living standards in relation to average income; if it stays at 10%, their relative living standards will drop by a third. If the state funds the whole increase, it will need higher taxes equivalent to £57 billion ($102 billion) in today's money. The alternatives are a dramatic increase in income from funded pensions, or else the average retirement age—when people quit work, not when they become entitled to state pensions—must rise from 63 to 70.

The commission expects that income from funded pensions to people over 65 will rise by around 1% of GDP by 2050. And the government has already conceded the need for some increase in state spending on pensioners. Including housing-related and disability benefits as well as pensions and the pension credit, this will rise from 6.1% of GDP today to 6.9% in 2050. But even with these assumptions, which include a tax rise of nearly 1% of GDP, there remains a gap of 3% of GDP. A failure to plug it would leave pensioners' relative living standards 21% lower in 2050 than today. Alternatively, the average retirement age will have to rise to 67.

But serious difficulties will emerge long before 2050. Between 2010 and 2020, some help will come from the rise in the women's state pension age from 60 to 65, the same as for men now. The commission expects this will raise the average age of retirement for women from 61.6 to 63.8, the current male average. But Adair Turner, the commission's chairman, gave warning when presenting its report on October 12th that “the big problem” on current trends and policies will emerge in the 2020s. That is when there will be especially big increases in the number of pensioners, reflecting high birth rates in the late 1950s and early 1960s.

This demographic challenge should come as no real surprise...

What's harsh about choosing to have a culture of life instead of trying to have your nation perish quietly?

Posted by Orrin Judd at October 17, 2004 2:07 PM