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