Should we really expect to retire at 65?

Public sector pensions are being cut and the state retirement age is slowly but surely being pushed towards seventy. Many people are outraged by all this but is it reasonable, now, to expect to retire at 65?

Most of us have grown up with that assumption and, over the past 20 years, early retirement has become more common, as people with good pensions cashed in their chips while they still had some healthy life left.

But now we have a problem. Well, we have three, actually, but they are all related.

Our public debt will pass 100 percent of GDP in 2013, economic growth is projected to be zero-to-low over the next decade and our aging population will add somewhere between 2 and 5 percent of GDP to public spending by 2030. Each of these would be a problem on its own but we’ve got them all at the same time.

We know that, whatever politicians say, governments don’t really pay off debt, they just grow their way out of it, so it becomes smaller as a proportion of GDP. This has always worked in the past. The problem is that we now have a debt level approaching the one we had at the beginning of the 1960s but we are unlikely to get the sort of big growth rates that, fifty years ago, helped us to shrink our relative debt. The OBR does not see the UK achieving growth of 3 percent for any year between now and 2030. Few are optimistic enough to predict the 4 and 5 percent spurts we saw in the 1960s.

This, in turn, means that we will be stuck with a relatively high debt-to-GDP ratio for some time. Even the OBR’s most optimistic projection has debt at 55 percent of GDP by 2030, still well ahead of our pre-recession level.

While all this is going on, the demographic timebomb is ticking. From around 2020, the pressure on the public purse from the aging population becomes severe. Another £20 billion of cuts or tax rises will have to be found to pay for it, according to calculations by PwC.

The chances of economic growth being able to outrun the pressures of debt and demographics are remote. It may even be that the demographic shift is holding back the growth rates. This paper from Oxford Economics concludes:

The period after 2018 is likely to see potential output growth slow further, as the effects of an ageing population progressively reduces the contribution of labour supply.

As Colin Talbot said in a comment on one of my previous posts, an increasingly large segment of the population dependent on depleting pensions will depress demand and “act like a giant sheet anchor on the economy”.

Aging economies with fewer working people don’t grow like younger ones. The society that powered away from debt in the 1960s was a young dynamic one. The Carnaby Street Society could outrun a debt-to-GDP ratio of 100 percent. The Boden Society, with its sedate 2 percent growth rates, just can’t move as fast.

All of which means that, if we are to avoid stagnation, people will have to stay economically active for longer. This is not as frightening as it sounds. People in their 60s are a lot healthier than they were. Look at some of the old film footage of the 1920s factories. Many of the stooped old men and wizened old women coming out of these places were only in their 50s. About the same age as Madonna is now.

An extreme example perhaps, but old people certainly ain’t what they used to be. The factors that are making us live longer are also making us capable of working longer. I’m not suggesting that people should hew coal or dig ditches until they are 70 but there are jobs that people can do later in life without needing the physical strength of a 30-year-old.

Unfortunately, for those of us brought up to assume we would have a long and healthy retirement, a number of things have happened all at once. The demographic pressures would have happened anyway but, on top of that, we got the worst recession in living memory and a massive public debt which leaves us little room for manoeuvre. As is usual when things go catastrophically wrong, the timing is crap.

So is it reasonable to expect a diminishing proportion of the workforce to generate the economic growth to maintain our private pensions and the taxes to pay for our state ones, while servicing high government debts at the same time? I don’t think it is. In twenty years or so when I come to retire (or when I thought I would be retiring) I doubt that there will be much choice. Sixties retirement was for the Boomers. Apart from the privileged few, those in Gen X and beyond can look forward to a much longer working life.

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8 Responses to Should we really expect to retire at 65?

  1. Pingback: Should we really expect to retire at 65? - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  2. Annabel Kaye says:

    From talking to individuals it seems the real issue is whether we feel capable of doing our current role then. From physiotherapists to teachers there seem to be real anxieties about how long the role could be done.

    Perhaps we need to look at opening opportunities for people to shift roles in a more fluid way once they arrive at a time of life when heavy lifting, sore bones, or poor hearing make their original profession very difficult to do on a full time basis.

    The ‘career average’ proposals may need to be reviewed against ‘career wind downs’. At the moment anyone retired on ill health grounds is prohibited from working and claiming their occupational pension until they reach normal retirement age

  3. Two words: “soylent green”

  4. I agree: of course, there are already lots of over 65 year olds working and delivering great value to organisations – think of some writers and leadership coaches you have met or heard of – by public sector standards many of them would have been booted out and pensioned off long ago but there they are.

    My father is 77, disabled (blue badge and everything) and still running the social club he has owned for the past 30 years. He should retire really, but he won’t.

    I guess as my dad hasn’t retired I never assumed that I would, and increasingly it looks like I’ll drop dead staring at a screen (err, let’s hope not). I’d like though, to love what I do so much that I wouldn’t want to give up. I guess ideally you’d earn enough that you can afford to work less, but enjoy it more, but there’s no guarantee of that either. There are some jobs – e.g. psychiatric nursing which have a mandatory cut off point for safety reasons.

    I’ve got a few years to get really good at the stuff I love and as we blur the boundaries between work and home – and increasingly, we are – I hope retirement won’t be this deadline we look forward to in glee, but that we can do it when we need to, and in the meantime continue to enjoy persuing a career, good health permitting.

    But perhaps I ask too much!

  5. Doug Shaw says:

    I like my work. I’d be delighted that folks might be willing to engage me in my work at sixty six, seven, eight etc. And I recognise that my work ain’t ditch digging or coal hewing. If it were, I’d probably vote for Annabel Kaye as Prime Minister. Actually I might just do that anyway.

  6. Mark J. McWilliams says:

    I agree that people are not redundant when they reach retirement age, that is why age discrimination legislation is valuable. However, I like to think that we have moved on in some positive ways from the 1920s when the retirement age was set and that people should be able to retire at a time when they can still enjoy it.

    I don’t think that society is less dynamic now because it’s older, I think it’s because young people are over-qualified and under-employed. That isn’t a short term problem, thousands of dynamic young graduates will never work anywhere but call centres and their prospects of breaking into good jobs are not helped by extending the retirement age.

  7. Alan Fleming says:

    There is another aspect to consider. We are trying to keep people economically active post 65. At the same time there is a growing number of people who are economically inactive at the opposite end of the workforce age range.

    If there is a finite number of people who are economically active, and that must surely be an outcome from negative growth, is it not better to target economic activity at the lower age range?

    As a graduate approaching retirement in the public sector I will be happy to vacate my post and look for other employment to subsidise my pension. Should I be unable to do that I may require support from the benefit system. It sems to me that is a better solution than requiring me to stay longer in my job thus denying a younger graduate the chance of a career.

  8. Pingback: That was the local government week that was « We Love Local Government

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