Raising the pension age: Hurrah!

How incredibly sensible:

In a move intended to halt the trend for workers to spend a growing proportion of their lives in retirement, the Chancellor announced a mechanism to raise the state retirement age automatically in line with life expectancy.

Yeeessssss!

In future, he said, regular, independent reviews should establish longevity rates, which would then be used to decide the state pension age.

Hurrah!

This is something I\’ve been banging on about for years (here\’s me in 2007 saying so and I\’m sure there are earlier examples I can\’t be bothered to find right now).

It\’s quite simple really. The old age pension is a form of social insurance.

We must distinguish between insurance and assurance. Assurance is a form of saving for something you know (or at least is highly likely to) will happen. Insurance is a form of protecting yourself against something that might happen.

Saving for your burial expenses is assurance (for despite those lost at sea etc, almost all of us will need to have our carcasses disposed of in some manner). Saving against the risk of your house burning down is insurance, as it doesn\’t actually happen very often.

When the old age pension was brought in it was insurance. Insurance against the risk of living too long.

There\’s some rational view that you can and should take of your likely lifespan. A reasonable one would be how long are the old people living currently?

Similarly, there\’s a rational view of the savings that you need to accrue during your working life: how long are the old folks living currently?

So, you rationally save that sum: and then you\’re exposed to the risk of living too long, of outliving your savings. It\’s a pleasant risk of course, even if not one that\’s all enjoyable: living longer is generally regarded as a good thing even if poverty isn\’t.

And this is what, when they were first instituted, those old age pensions were. Insurance against outliving that rational level of savings. I think (and can\’t be bothered to check) that Bismark\’s first effort pegged the pension age at above the average age of death. Lloyd George\’s was at about the average age of death.

Osborne\’s reform here is, while not specifically stating that it\’s exactly this, akin to doing what is necessary. Returning the old age pension to what it was and arguably should be. A form of social insurance against outliving your savings through the unhappy circumstance of living a long time, not assurance as it is now.

Oh, and for those who think this is some vile neo-liberal idea I should note that I\’ve taken the analysis and policy prescription wholesale from Brad DeLong. You know, that Professor of Economics at Berkeley, not a noted hotbed of vile right wing ideas.

Me saying much the same thing here.

BTW, no, just because I have been shouting in the wilderness that this is a good idea for years, that someone has actually implemented it does not mean that I think they have done so because of my shouting. Even as I insist that it\’s a good idea which I support, my ego isn\’t quite that large.

11 comments on “Raising the pension age: Hurrah!

  1. The original state pension age in the UK was 70 when set in 1908, cut to to 65 in 1925 and cut further for women (after lobbying by same) to 60 in WW2/shortly after.

    We still have a long way to go to get back to Lloyd-George’s original.

  2. This doesn’t really make any sense.

    You are essentially saying that *your* time preference, and what you consider reasonable to save for the future is the rational level. In fact, it’s subjective.

  3. This would make perfect sense if only the State didn’t relieve us of around half of everything we produce, throughout our lives, while promising the moon in return.

    We can, by all means, pay for our own moon; but not if they take our money away.

  4. fj, Andrew, you’re missing the point I think. Without a link between pensionable age and life expectancy you have to pay for a growing pool of pensioners from a static pool of workers. No government can make that work indefinitely as life expectancy rises.

    What ratio is set between working years and pensioned years is debatable, but you have to set one. Otherwise you *will* see people taxed through the nose yet retiring to poverty.

    Without accepting the need for a ratio you can’t even begin to discuss what is a sensible pension age today.

  5. Yes – As far as the citizens of the UK were concerned they were paying money to the government to be held in trust for a pension when (and if) they required it.

    All the government did was paid up whenever a new pensioner appeared and (for the most part) added it to the national credit card bill.

    Its portrayed as a fund, when in reality its a Ponzi scheme.

  6. The hated Thatcher banged on about this for years but all she got in return was fingers in ears to the tune of lalala we’re not listening ’cause your a witch

  7. When the AAA has separate category for the *decathlon* for those over-85 (my club had a decathlete who was 90+ competing a couple of years ago) , then the argument for flexible retirement ages is overwhelming. Until recently footballers could draw a pension at age 35, fireman at 55 and factory workers at 65.
    Someone should retire when work becomes more effort than is justified by the difference between his/her earnings from work and the pension that he/she has earned. A strong healthy guy can and should work longer than someone who is weak or unhealthy. There is no moral justification for the state giving me an income when I get to the age of 65 (no, National Insurance can’t do that – Attlee set it up as a Ponzi scheme as Bevan famously admitted).
    Lloyd George’s age was higher than Bismark’s but not necessarily further from the average life expectancy because that had improved in Edwardian times. The Bismark and Lloyd George schemes covered those who had worked longer than they were generally expected to live and provided a carrot to the worker “you can have a rest if you keep working after most of you colleagues have dropped dead” and relieved employers of worrying what to do about guys who had been working for 50+ years but were no longer up to it.

  8. @ Tim
    I was advocating a variable retirement age in the mid-70s but the report never got finished because some apparatchik in CCO required myself and one colleague, to whose house I used to walk/jog for meetings to fund the whole research project and we just didn’t have the resources (if I couldn’t afford a taxi, why did they think I could afford that)

  9. who is going to decide when you are unfit / can’t work?
    They are a bit worried about age 70+ doctors in parts of the USA
    And what of nuclear scientists when are they unable ?

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