A man on his bicycle attends a demonstration over pension reforms in Paris...A man on his bicycle attends a demonstration over pension reforms in Paris, September 10, 2013. French unions take to the streets on Tuesday in protest against a reform of the country's indebted pension system, with some disruption in transport expected but no mass upheaval against an overhaul seen as moderate in scope. The placard reads "Private and public sector workers, retirement at hundred, no thank you ! ". REUTERS/Jacky Naegelen (FRANCE - Tags: POLITICS BUSINESS EMPLOYMENT SOCIETY) - RTX13FS1
A la retraite: a demonstrator in Paris protests against reforms of the French pension system

Lifting, carrying, digging. That is how Derek Wardlaw characterises his work as a road-digger in Dunfermline in the Scottish lowlands. The job, he muses, is not getting any easier. “It’s physically taxing and gets harder as you get older,” says the 51-year-old. “The physical wear-and-tear on your body, the injuries, they take their toll.”

The prospect of working to the age of 70– as proposed this month by George Osborne, chancellor of the exchequer – is risible to Mr Wardlaw. He doubts his body could cope. As it is he expects to work until 67, under changes to the state pension age. In 2020 it rises from 65 to 66, and further still to 67 between 2026 and 2028.

Britain is hardly alone in grappling with the costs of providing state pensions to an elderly population that is living longer than its predecessors. In the US, for example, the age at which one could draw a full state pension is already 66 and set to rise to 67 over the next few years. Denmark, Greece, Italy and South Korea – among others – have also opted to link increases in pension ages to changes in life expectancy. Although reforms have not gone smoothly – in France, for example, proposals to raise the retirement age from 60 to 62 were met with widespread protests.

Most state pension systems were designed no later than the mid-20th century, when there was little expectation of longer life at age 65. Over the next quarter century, the number of Britons aged 70 and over will nearly double, from 7.5m to 13.6m, while the number of those of working age will rise only marginally.

Globally, life expectancy for men aged 60 rose by roughly five years between 1950 and 2010. Among developed nations the rise is even more pronounced. In the UK, for example, men aged 60 now live nearly 50 per cent longer than they did in the middle of the last century.

Gabriel Sahlgren, research fellow at the Institute of Economic Affairs – a right-leaning think-tank that this year produced a study, “Is retirement bad for your health?” – insists that raising the retirement age is a good idea. “Longer retirement has deleterious effects on your health both mentally and physically,” he says. Not only for white-collar workers, he insists, but also for those in manual jobs, such as Mr Wardlaw. “Most people need the structure of a job. CEOs as well as manual workers enjoy working longer. The fact that we live longer means that we are also more capable physically of doing manual jobs for longer than we used to.”

Research by the University of Zurich found that blue-collar workers who retired early died younger than their employed peers. Others counter that these workers had to stop working because they were ill or disabled.

When state pension systems were introduced not only was life expectancy shorter but women in most countries were having more babies. Governments could count on a growing army of workers to pay the taxes that support retirees under the pay-as-you-go regime that characterises most social security systems.

But that is no longer happening. For more than three decades, most of Europe has produced too few babies to maintain its population. That means the burden of paying pensions longer to an expanding group falls on the shoulders of fewer workers.

Governments cannot order women to have more babies. Therefore, they have done the next best thing: raise the age at which workers become eligible for state pensions.

The problem is that looking at average life expectancy obscures an uncomfortable truth. That is, longer – and healthier – lives for the elderly are much more likely to be enjoyed by the rich than by the poor. Moreover, the gap is getting bigger.

Club Vita, a consortium that calculated longevity for private and public sector employers, found the gap in life expectancy between rich and poor pensioners is growing. Geography also makes a difference. A pensioner in the wealthy London borough of Kensington and Chelsea can expect to live for 22.4 years after retiring; his Carrickfergus counterpart in Northern Ireland will enjoy only 15 years.

That makes the state pension about 50 per cent more valuable to the richer man than the poorer one, says Steven Baxter, consultant to Club Vita.

In Leeds, in the north of England, Deanne Ferguson, a 29-year-old administrator at the GMB trade union, is incensed by an increased retirement age that will mean those living in the north will not enjoy a paid-for retirement as long as those in the south. “It’s about fairness. Those in the north don’t live as long as those in the south. The north-south divide means it will not be fair.”

The US is witnessing similar trends, according to Boston College’s Center on Retirement Research. Alicia Munnell, the centre’s director, wrote in a 2007 study that the “strong and increasing relationship between earnings and life expectancy makes it difficult to design any equitable retirement benefit structure”.

However, there is another element to the debate about longer working lives: young people feel that there will be no jobs for them unless older workers retire. Yet economists dismiss the idea that an economy can offer only a fixed number of jobs, labelling it the “lump of labour fallacy”.

The OECD has found that countries with higher workforce participation rates at older ages also have them at younger ages. “If you get rid of a senior manager, do you really expect some guy just out of school is going to take his place,” says Mark Keese, economist and head of the employment division at the OECD.

Nonetheless, for young people, already burdened with high levels of unemployment, extending the retirement age for those now entering the workforce seems a step too far. As Ms Ferguson, a single mother, puts it: “Instead of taxing companies and bankers at the correct rate, it is the young that are hit hardest. We have employers who are paying hardly anything and we are not earning enough to save for a private pension. I feel angry.”

The relative affluence enjoyed by baby boomers in their retirement is likely to be savoured by their offspring only if it is shared. A report by the UK’s Institute for Fiscal Studies has found the best chance of a bountiful pension for those born in the 1960s and 1970s is an inheritance from their parents.

Yet some argue that extending people’s working lives should not be seen as a way of flogging the elderly but as an opportunity for a new phase in their careers. The birth of the so-called “encore career” which sees people in their 50s and 60s change career has been documented by US author, Marc Freedman in his book, The Big Shift: Navigating the New Stage Beyond Midlife. Encore careers, he says, are a “kind of practical idealism, combining the need on the part of millions for continued income with their desire to live a life that still matters”. Mr Freedman says people need to transform their mindset from “‘what’s last’ to ‘what’s next’”.

Mr Wardlaw, who left school without any qualifications, is unconvinced by such careers, believing they are the preserve of the professional classes. He says that when his body packs up, so will his career options.

Moreover, older workers argue that age discrimination persists in spite of legislation. Malcolm Victory, who is 61, says: “Ageism is inherent in business. They don’t value the experience that older people have. Technological changes exaggerate the bias against older workers.”

Yet commentators on the Millennial generation – those born in the 1980s to the early 2000s – believe that the debate on retirement is mired in outdated thinking.

Tammy Erickson, author of Plugged In: The Generation Y Guide to Thriving at Work argues that retirement is “less an issue for Millennials than it is for boomers”.

Millennials, she says, are unlikely to work in a job for 30 years with the hope of retiring one day. In fact, she believes that they are unlikely to see retirement as a distinct event – instead their lives “will evolve through many different phases of work intensity over time”.

Bruce Tulgan, a consultant and author of Not Everyone Gets a Trophy, makes a further distinction, dubbing those born between 1990 and 2000 as Generation Z. “Both Yers and Zers tend to give very little thought to retirement …They are less likely to trust the ‘system’ or the organisation to take care of them over time and thus less likely to make immediate sacrifices in exchange for promises of long-term rewards.”

Uncertainty marks these generations’ outlook, he argues. Generation Z’s sense of stability is even rockier than Y’s. “There is more change at a quicker pace and with it comes more uncertainty.” Rather than relying on a company or state to look after them, they believe “they need to take care of themselves”.

Alex Dayes, a 26-year-old from east London who works for Enfield council’s housing services, admits he has given scant thought to retirement. He has little faith that he will be looked after by a state pension. Instead, he has vague aspirations to build a business and live off the income. How does he feel about working for another 44 years? “It seems scary.”


Letters in response to this article:

The realities of ageing at work / From Mr Graham Hall

Encourage more births by making homes affordable / From Mr Julio Velarde

Get alerts on UK business & economy when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article