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Planning Pensions for the 21st Century: Meeting the Challenges of an Ageing Society
Planning Pensions for the 21st Century: Meeting the Challenges of an Ageing Society
Jane FalkinghamJane Falkingham
ESRC SAGE Research GroupESRC SAGE Research Group
London School of EconomicsLondon School of Economics
Ageing Population – Benefit Or Burden?Ageing Population – Benefit Or Burden?
Edinburgh, ScotlandEdinburgh, Scotland
22nd January 200222nd January 2002
OverviewOverview
• The challenges of an ageing population: The challenges of an ageing population: demographic, economic & policy legacydemographic, economic & policy legacy
• Pension systems: desirable criteriaPension systems: desirable criteria
• New Labour’s pension settlementNew Labour’s pension settlement
• Ways forward in the 21Ways forward in the 21stst Century Century
The challenges of an ageing population: demographic context
The challenges of an ageing population: demographic context
• Increasing proportion of pensioners in the Increasing proportion of pensioners in the populationpopulation• 1901 5% aged over 601901 5% aged over 60• 2001 20%. 2001 20%. • 2021 25%2021 25%
The challenges of an ageing population: demographic context
The challenges of an ageing population: demographic context
• Increasing proportion of pensioners in the Increasing proportion of pensioners in the populationpopulation• 1901 5% aged over 601901 5% aged over 60• 2001 20%. 2001 20%. • 2021 25%2021 25%
• Increasing time spent in retirementIncreasing time spent in retirement• Female life expectancy at age 60Female life expectancy at age 60 21.3 in Scotland; 22.8 in England21.3 in Scotland; 22.8 in England
The challenges of an ageing population: demographic context
The challenges of an ageing population: demographic context
““Old age is the most unexpected of all things Old age is the most unexpected of all things to happen to a man” to happen to a man”
Excerpt from Leon Trotsky’s diary, Mexico Excerpt from Leon Trotsky’s diary, Mexico 1935.1935.
• The normalisation of old age means it is no The normalisation of old age means it is no longer a ‘risk’ to be insured againstlonger a ‘risk’ to be insured against
0
20
40
60
80
100
15 20 25 30 35 40 45 50 55 60 65 70 75
1916-201931-351946-501961-65
Age
%
Source: Evandrou and Falkingham, 2000.
Changes in Working Life: Proportion of men in employment by birth cohort
Changes in Working Life: Proportion of men in employment by birth cohort
The challenges of an ageing population: economic contextThe challenges of an ageing
population: economic context
• 1 in 3 people aged 50 to retirement age are 1 in 3 people aged 50 to retirement age are
not in employment.not in employment.
• The proportion of men aged 50-65 not in The proportion of men aged 50-65 not in
employment has doubled since 1979.employment has doubled since 1979.
The challenges of an ageing population: policy context
The challenges of an ageing population: policy context
Changes in the welfare mixChanges in the welfare mix
The challenges of an ageing population: policy context
The challenges of an ageing population: policy context
Changes in the welfare mixChanges in the welfare mix
• A devalued basic pensionA devalued basic pension
The challenges of an ageing population: policy context
The challenges of an ageing population: policy context
Changes in the welfare mixChanges in the welfare mix
• A devalued basic pensionA devalued basic pension
• Growth in occupational pensionsGrowth in occupational pensions
Current membership of occupational pension scheme by sex and socio-economic group (%)Current membership of occupational pension scheme by sex and socio-economic group (%)
0
10
20
30
40
50
60
70
80
All Prof Emp/man Int non-man
Jun non-man
Skilledman
Semi-skman
Unskilledman
Men f/t
Women f/t
Women p/t
Source: General Household Survey 1998
%
The challenges of an ageing population: policy context
The challenges of an ageing population: policy context
Changes in the welfare mixChanges in the welfare mix
• A devalued basic pensionA devalued basic pension
• Growth in occupational pensionsGrowth in occupational pensions
• Personal pensionsPersonal pensions• Individualisation of riskIndividualisation of risk
The challenges of an ageing population: policy context
The challenges of an ageing population: policy context
Changes in the welfare mixChanges in the welfare mix
• A devalued basic pensionA devalued basic pension
• Growth in occupational pensionsGrowth in occupational pensions
• Personal pensionsPersonal pensions
• Partnership in pensions’ state:non-state Partnership in pensions’ state:non-state
balance to shift from 60:40 to 40:60balance to shift from 60:40 to 40:60
Rising Pensioner Incomes:Average gross income, 1979 and 1996/7
Rising Pensioner Incomes:Average gross income, 1979 and 1996/7
0
50
100
150
200
250
1979 1996/7
£ p
er w
eek Other
EarningsInvestmentOcc PenBenefit income
Source: Table A1 The Pensioners’ Income series 1999/00Note: all figures July 1999 prices
Rising Inequality:Median net income of pensioner couples, 1979 and 1996/7
Rising Inequality:Median net income of pensioner couples, 1979 and 1996/7
050
100150200250
300350400450500
1979 1996/7
£ p
er w
eek Bottom fifth
234Top fifth
Source: Table A13 The Pensioners’ Income series 1999/00Note: all figures July 1999 prices
The challenges of an ageing population: pensioner povertyThe challenges of an ageing
population: pensioner poverty
• Over a quarter of pensioners have incomes in Over a quarter of pensioners have incomes in
bottom fifth of the income distributionbottom fifth of the income distribution
• 38% of single female pensioners and 81% of 38% of single female pensioners and 81% of
married female pensioners have gross incomes of married female pensioners have gross incomes of
less than £100 per weekless than £100 per week
• Single female pensioners have the highest risk of Single female pensioners have the highest risk of
experiencing persistent povertyexperiencing persistent poverty
The challenges of an ageing population
The challenges of an ageing population
• More older people, living longerMore older people, living longer
• Shorter working livesShorter working lives
• Greater diversity, growing inequalityGreater diversity, growing inequality
• Changing pension mix, increasing Changing pension mix, increasing
individualisation of riskindividualisation of risk
Pension systems: desirable criteriaPension systems: desirable criteria• AdequacyAdequacy• Administrative efficiencyAdministrative efficiency• AffordabilityAffordability• EquityEquity• Political sustainabilityPolitical sustainability• Protection of incentivesProtection of incentives• TransparencyTransparency
Any reform involves a trade-off between these criteria.Any reform involves a trade-off between these criteria.
New Labour’s pension settlementNew Labour’s pension settlement
Pre 1998Pre 1998
First tier state provisionFirst tier state provisionBasic State PensionBasic State PensionIncome SupportIncome Support
Second tier compulsory optionsSecond tier compulsory optionsSERPSSERPSOccupational PensionsOccupational PensionsPersonal PensionsPersonal Pensions
Third tier voluntary optionsThird tier voluntary optionsAVCsAVCs
New Labour’s pension settlementNew Labour’s pension settlement
Pre 1998Pre 1998 Post 1998Post 1998First tier state provisionFirst tier state provisionBasic State PensionBasic State PensionIncome SupportIncome Support
Basic State PensionBasic State PensionMinimum Income GuaranteeMinimum Income GuaranteePension CreditPension Credit
Second tier compulsory optionsSecond tier compulsory optionsSERPSSERPSOccupational PensionsOccupational PensionsPersonal PensionsPersonal Pensions
SERPSSERPSState Second PensionState Second PensionOccupational PensionsOccupational PensionsStakeholder PensionsStakeholder PensionsPersonal pensionsPersonal pensions
Third tier voluntary optionsThird tier voluntary optionsAVCsAVCs AVCsAVCs
New Labour’s pension settlement: delivering adequate incomes?
New Labour’s pension settlement: delivering adequate incomes?
New Labour’s pension settlement: delivering adequate incomes?
New Labour’s pension settlement: delivering adequate incomes?
Today’s PensionersToday’s Pensioners• Focus on Minimum Income Guarantee Focus on Minimum Income Guarantee
• Extension of means-testingExtension of means-testing
New Labour’s pension settlement: delivering adequate incomes?
New Labour’s pension settlement: delivering adequate incomes?
Today’s PensionersToday’s Pensioners• Focus on Minimum Income Guarantee Focus on Minimum Income Guarantee
• Extension of means-testingExtension of means-testing• Problems of take-upProblems of take-up
New Labour’s pension settlement: delivering adequate incomes?
New Labour’s pension settlement: delivering adequate incomes?
Today’s PensionersToday’s Pensioners• Focus on Minimum Income Guarantee Focus on Minimum Income Guarantee
• Extension of means-testingExtension of means-testing• Problems of take-upProblems of take-up• Problems of incentives to saveProblems of incentives to save
New Labour’s pension settlement: delivering adequate incomes?
New Labour’s pension settlement: delivering adequate incomes?
Today’s PensionersToday’s Pensioners• Focus on Minimum Income Guarantee Focus on Minimum Income Guarantee
• Extension of means-testingExtension of means-testing• Problems of take-upProblems of take-up• Problems of incentives to saveProblems of incentives to save
• Pension CreditPension Credit• Another layer of complexityAnother layer of complexity
New Labour’s pension settlement: delivering adequate incomes?
New Labour’s pension settlement: delivering adequate incomes?
Tomorrow’s PensionersTomorrow’s Pensioners• State Second PensionState Second Pension
New Labour’s pension settlement: delivering adequate incomes?
New Labour’s pension settlement: delivering adequate incomes?
Tomorrow’s PensionersTomorrow’s Pensioners• State Second PensionState Second Pension
• Target group < £10,000 per annumTarget group < £10,000 per annum
New Labour’s pension settlement: delivering adequate incomes?
New Labour’s pension settlement: delivering adequate incomes?
Tomorrow’s PensionersTomorrow’s Pensioners• State Second PensionState Second Pension
• Target group < £10,000 per annumTarget group < £10,000 per annum• ? Adequacy In 2050, BP+ S2P > MIG by £1? Adequacy In 2050, BP+ S2P > MIG by £1
New Labour’s pension settlement: delivering adequate incomes?
New Labour’s pension settlement: delivering adequate incomes?
Tomorrow’s PensionersTomorrow’s Pensioners• State Second PensionState Second Pension
• Target group < £10,000 per annumTarget group < £10,000 per annum• ? Adequacy In 2050, BP+ S2P > MIG by £1? Adequacy In 2050, BP+ S2P > MIG by £1• ? Incentives & means-testing? Incentives & means-testing
New Labour’s pension settlement: delivering adequate incomes?
New Labour’s pension settlement: delivering adequate incomes?
Tomorrow’s PensionersTomorrow’s Pensioners• State Second PensionState Second Pension
• Target group < £10,000 per annumTarget group < £10,000 per annum• ? Adequacy In 2050, BP+ S2P > MIG by £1? Adequacy In 2050, BP+ S2P > MIG by £1• ? Incentives & means-testing? Incentives & means-testing• ? Equity? Equity
New Labour’s pension settlement: delivering for the next generation?New Labour’s pension settlement: delivering for the next generation?
• ? Transparency ? Transparency
New Labour’s pension settlement: delivering for the next generation?New Labour’s pension settlement: delivering for the next generation?
• ? Transparency? Transparency
• ? Political sustainability of:? Political sustainability of:• a system of separate and incoherent elementsa system of separate and incoherent elements
• a system targeted on the lifetime poora system targeted on the lifetime poor
• a system designed without due regard to the a system designed without due regard to the futurefuture
Ways forward in the 21st Century
Ways forward in the 21st Century
• Pensions policy is the oil tanker of social Pensions policy is the oil tanker of social policypolicy
• Need a system to deliver for both today’s Need a system to deliver for both today’s pensioners and tomorrow’spensioners and tomorrow’s
• Go ‘back to basics’Go ‘back to basics’• Think the unthinkableThink the unthinkable