From the TUC

The inconvenient truth preventing extended working lives

31 Aug 2012, by Guest in Pensions & Investment

Increasing the state pension age may be a good thing for the country’s balance sheet, which explains why the coalition government plans to accelerate the timetable for increases established by the Pensions Commission, chaired by Adair Turner.

But it will fail to provide the economic boost the government is expecting unless later retirements can be achieved in practice. And while spending on the state pension will fall (or rise more slowly than it otherwise would) the fiscal benefit is also dependent on higher tax revenues from older people working for longer. On top of this, if actual retirement ages do not rise in line with the state pension age, additional spending on working-age benefits will be triggered to fill the gap.

We already knew that increasing state pension age was unfair. Variations in life expectancy and healthy life expectancy based on geography and wealth mean that people from more affluent areas spend a higher proportion of their life in retirement, and a higher proportion of their retirement in good health, than people from more deprived areas. Yet the sheer scale of worklessness – most of it involuntary – among people approaching state pension age means that the policy may also prove to be a case of wishful thinking.

New research by the TUC using ONS data on the group of people just below state pension age (men aged 60-64 and women aged 56-60) underlines the scale of the challenge. The employment rate for this group is below 60 per cent. And the vast majority of those out-of-work are economically inactive rather than seeking work.

The recent news that record numbers of people are working beyond state pension age was welcome insofar as it demonstrated the capacity and willingness of many older people to remain active in the labour market. But it may be a sign too of the financial pressures many older households face. And given that more than 60 per cent of those working beyond state pension age are women, it is not a trend we should necessarily expect to continue as female state pension age rises rapidly over this decade from 60 to 66.

Our main concern, in any case, should be those just below state pension age that are unable to work, and could therefore face increased hardship in the future. They are stuck in what we call a ‘limbo zone’ between work and retirement. Indeed, the research shows the main reason for inactivity among this group is disability and long-term illness.

Furthermore, it is people formerly working in skilled trades, heavy industry and low-skilled jobs who are most likely to be inactive for this reason. In contrast, it is those from professional occupations – and to a lesser extent senior managers, directors, and officials – that are more likely to be inactive due to early retirement. Longer working lives will clearly be harder on some socio-economic groups than others.

The extent of hardship currently being experienced is to some extent being masked by the Pension Credit income guarantee, a means-tested pensioner benefit available to both men and women at female state pension age. 13 per cent of men aged 60-64 are in receipt of this benefit, equivalent to nearly a third of the economically inactive. This safety net will disappear as the eligibility age rises.

There are some out-of-work older people actively seeking employment. But nearly half of those classed as unemployed in this group have been unemployed for at least a year. This is a problem that affects men in particular. Almost a third of unemployed men in this age group have in fact been unemployed for two years or more, and almost one in eight have been unemployed for four years or more. The likelihood of returning to work in later life after a sustained period of unemployment is remote.

The value older people in the workforce should of course be appreciated. We know that many older people not in employment would like to be able to work, and by focusing on tackling age discrimination and enabling flexible working, the government could be supporting them to do so. It is vital that older unemployed workers are able to access high quality employment support. But at a time of high youth unemployment, forcing people just below state pension age – many of whom have health problems or disabilities – to comply with tight Jobcentre Plus requirements is a poor use of resources.

It is addressing health inequalities, not raising the state pension age, that will enable more people to work for longer. This wider agenda will also have a dramatic, positive effect on the country’s economic performance, as demonstrated by 2009 research funded by the Cabinet Office. Yet the self-defeating insistence on short-term cuts in public spending is getting in the way.