A retirement revolution is needed in the Western world. As life expectancy has been rising inexorably during the past few decades birth rates have been falling, the aging population poses major challenges to all economies. says Ros Altmann.
The scale of our demographic challenge is so large that immigration cannot realistically be expected to replace the numbers of over 50s who might leave work.
By 2022, there will be 700,000 fewer people aged 16 to 49 in the UK – but 3.7 million more people aged between 50 and state pension age. If the over 50s continue to leave the workforce in line with previous norms the economy would suffer serious labour and skills shortages on a scale that could not be filled by immigration alone and there will not be enough young people to support ever-rising numbers of economically inactive pensioners.
For many years, the focus of attention has been on encouraging people to save more and increase their pensions in order to ensure an aging population can be supported sustainably.
Of course saving more is important, but the amounts that would need to be saved to provide a decent income level to last for ever-lengthening periods of retirement are too high to be realistic for most people. And many people have large levels of debt that need to be repaid too.
So, working longer also has a vital part to play as part of the solutions to the pension crisis.
This is not bad news though – it could be the answer to future concerns about demographic challenges and secular stagnation. Many of those reaching their 50s and 60s do not feel ‘old’ and want to keep working – both to earn more but also for the social interaction and stimulation of work itself.
This article was written by Ros Altmann prior to her appointment as pensions minister.