UK Tories Plan To Increase Pension Age To 75

[Nomad]

Has anyone seen this?

The Tory think tank proposes raising state pension age from 67 to 75 over the next few years.

https://www.mirror.co.uk/news/politics/ ... e-18953679

This is the actual policy document. Page 50 for the punchline.
https://www.centreforsocialjustice.org. ... -workforce

[jacob]

Welcome to the rest of the developed world
With yields as low as they are, politicians can solve for underfunded pension plans in four ways.

1. Increase work span
2. Increase taxes
3. Decrease payouts
4. Decrease lifespan

Only the first is politically viable because it is the only one that kicks the can down the road. Look out for a "movement" of people increasing their personal savings rate (the FIRE movement); politicians talking about increasing taxes on capital or wherever it's politically expedient; as well as suggestions by unions and concerned workers that maybe bricklayers deserve a different retirement age than professors.

[Gilberto de Piento]

There is a precedent for a different retirement age already too, with military, law enforcement, and fire typically being allowed to retire earlier.

[Gilberto de Piento]

I have also thought that maybe people will start to do some thinking about the effect of "double dipping," where people retire and use their benefits while also still working, sometimes from the organization they retired from.

[Seppia]

It only makes sense with people living longer.
At least you don't have politicians fighting wars against math like we have here in Italy (where populists just gave the option to people to retire EARLIER than before).

Every country with a demographically unsustainable pension system should do that asap, but most decide instead to kick the can down the road.
Issue is then "increase work span" won't be enough and will probably be integrated by some "decrease payouts" or "increase taxes" depending on what's politically easier to sell.

I suspect that, because of demographic trends, it will be easier to raise taxes to workers.

People around my age seem to be perfectly positioned to be screwed in the worst possible way, as we may simultaneously lose the benefits we were promised AND have to pay the bill for the boomers.

[Lemon]

Immensely sensible. Although this is a think tank proposal not current government policy.

It saves then even more because pretty much all other government back pensions have been quietly moved form starting at 65 to state pension age as the date at which benefits can be claimed. Most people didn't even notice this.

As jacob has pointed out 2&3 tend to be very unpopular let alone intentionally going for 4. 1 is also unpopular but tends to be a smaller group that can be ignored (see the WASPIs - basically all blown over).

@Gilberto Cameron tried to do that. Then realised it was going to cause a loss of the most experienced healthcare workers in the NHS. So it was watered down from just stopping 24 hr retirement and making it 30 day retirement.

[Sabaka]

Really conflicting thoughts on this. On one hand, it is pretty much one of the only economically viable options available in order to deal with looming crisis, but it also just smacks of "unfairism". I can just imagine the resentment it would create if such a policy was introduced.

"Okay 20-40 year olds, basically, you're going to have to wait a really long time for the state pension (if you get it at all) and even then you'll still need to work until you drop. Also, we still need you to fund the much more generous pensions of today's retirees, who also benefited in many cases from much lower house prices, more stable jobs (and much better workplace pensions), and also probably free university tuition (if they went)."

Would not go down well. Although what's the alternative?

[jacob]

@GdP - Double-dipping or even triple-dipping (20 year military career pension + 20 year federal career pension + SS pension => $100k+/year in retirement benefits) is popular/much desired in the US.

Over here, defined benefit plans were/are seen as a form of compensation (rather than a safety net) that is deferred into the future in return for lower salaries in the present. For example, a lot of teachers accepted low salaries in return for a good pension plan. The problem with that is that as far as the taxpayers are concerned, the benefit of the service (teaching) was delivered in the past, whereas the pension is paid by the present taxpayers.

So now we're in the situation where present taxpayers who had no say in the original deal and derives no benefit from it are up against teachers et al. who made lifetime career decisions like accepting a low salary under the presumption that the deal would not be changed. It's basically a zero-sum game now. (For outrageous examples, consider the deals made between universities and the football coach (often the highest paid employee at institutes of so-called higher learning) or surgeons who decided to teach. In such cases compensation packages were often sweetened by highly generous---think $250k/year---pension plans, that present students are now on the hook for. So tuition goes up!)

In a rational world, when something is debt funded like that the timing of the benefits should match the timing of the liability. For example, it makes sense to fund a bridge with debt because the benefits of the bridge is amortized over the years along with the debt payment. Conversely, a service like teaching or policing should be funded with taxes because their payoff is immediate and not durable.

The US is moving away from defined benefit (guaranteed payout) plans to defined contribution (the individual now holds all the risk) plans. This is a sneaky way to introduce (3).

[Bankai]

Meh, won't happen anytime soon, and likely never to this extent.

1) How many people above 70 are even able to work anymore? Certainly not many, and with automation reducing low skill jobs, what would we even want/need 70+ folks to do at work? On a similar note, the pace of change in the world is only accelerating; people 70+ who've been in the workforce for half a century, just won't be able to keep up anymore (at least vast majority of them).

2) Think-tanks recommended all sorts of things that never happened. There's a difference between what government can/will do and what one/few members of parliament think/say. Government's response to this report was actually along the lines of 'We've already raised retirement age 2 years ago and it's now sustainable' (it's not)

3) It would be political suicide on an unprecedented scale. Torries would be out of government for possibly decades. Changes tiny in comparison to this one resulted in massive unrest/lost votes (i.e. universal credit or rising retirement age by only 2 years from 65 to 67).

4) Ammunition for political opposition. 'You said we will flourish outside of EU, what you meant by flourishing is working until 75?!?'

5) Why would anyone want to be in this system, especially males? With life expectancy for males in the UK at 79 and predicted to actually reduce going forward, this would mean contributing to the system for 50+ years to benefit for... 4? No sane person would like that and so people would vote for anyone willing to rectify such a change.

6) There's already a lot of talk in the UK about intergenerational unfairness. Young people are universally seen as screwed over and as such kicking them with raising retirement age would not be popular.

7) Plenty of other cuts possible. If, according to the report, £4 out of every £10 in welfare spending goes towards state pension payments, what about the other £6? Like Child Benefit for example - why is it even needed considering the UK population grows by ~0.3m per year and the island isn't getting any bigger?

8) It's easier to inflate the debt away& kick the can down the road. Always was, always will be. See Torrie's promises/manifesto to balance the budget - this can has been kicked down the road for close to a decade now and the new chancellor recently said that the idea to balance books by mid-2020's needs rethinking.

[jacob]

@Bankai - These changes were indeed introduced in Denmark over the past 2-3 years so that might serve as an example of what/how it could go down. According to the current schedule, for example, my dad retired at 65. My mother (younger) will not be able to collect until 66. Anyone my age (not me personally since I haven't earned the rights) would not be able to get anything until age 71 (that would be in year 2046). Basically, add one year extra work for each 3 years you were born later. By 2075, it will hit 75 years.

People's reactions were much as I described above. FIRE strategies (DIY pension) are now regular getting front page exposure. Those in the FIRE community are paranoid that politicians catch wind of this and raise capital gains taxes. People/unions are working hard to get differential benefits based on their vocation (letters to the editor stuff). Add lots of whining about how present/future seniors won't be able to enjoy the same level of services (typically medical) as past seniors unless this or that policy is enacted.

To channel William Gibson (I think it was ...): The future is already here. It's just not evenly distributed.

Aside from underfunding, the problem of the western world is also that while lifespan is increasing, health span (or work span) isn't following through at the same level. As with many other systemic problems facing the world now, this would have been easier to solve if we had started fixing it 40 years ago.

[Dream of Freedom]

No need. Just pay for the pensions by selling 100 year bonds at negative interest rates.

[Bankai]

@Jacob - UK is not Denmark (see who voted to leave the EU for example). Also, there are examples of countries actually reducing retirement age (Poland to 65 for males and 60 for females iirc).

It's also hard for me to imagine Britons reacting in a similar manner to the one presented in this thread (or in Denmark) - the entitlement culture here is way too strong for that.

As for lifespan increasing - this is no longer the case for the UK (see here: https://www.theguardian.com/society/201 ... ive-months). The growing gap between lifespan and health/work span is an argument against increasing retirement age further, not for it.

[Lemon]

@Bankai don't be so sure. In the 90s under the guise of 'fairness' women were accelerated to parity with men for state pension age basically no one noticed until those who had assumed the younger age for them found out it wasn't true when they got close to when they thought they should claim - see WASPIs. A lot of young people already assume it won't be what it is now.

This is already being somewhat bedding in with he default saving that is now government mandated in to private pensions.

As for £4 going to state pension once you add in pension credit etc. in it goes up to £5.5 and because of the 'Triple Lock' hasn't been allowed to erode but is becoming an ever increasing share of the pie because of this and demography. Another large portion is Housing benefit and then Disability benefits. Child benefit is tiny and now only for the first 2 children. Most other areas have had cuts, pensions haven't. It is too big a piece not to have some sort of hit.

[Bankai]

Fair point, however, we're not in the '90s anymore. Nowadays it's all about social media and any attempt to get state pension increased through the back door would not only fail but cause an outrage.

As far as private pension opt-ins, it's a great idea. Nonetheless, a few % points per year won't make enough of a difference. Also, some employers, especially in lower-paying industries, offer low matching, which combined with low wages is not going to make anyone who saves only the default amount rich, or even able to afford retirement without heavily relying on the state pension.

Re triple-lock - totally agree, this policy made sense when it was introduced, but is outdated now - pensioners are actually better off than working people in their 20s and 30s. Going forward, I see the government kicking the can down the road as they always do and only making cosmetic changes every few years as to not infuriate voters. So, in 5 years time triple-lock might become double-lock, in another 5 it will change into annual inflation adjustment only, somewhere in between winter fuel payment will go etc. I don't think there's currently any appetite for drastic movements like increasing retirement age by 8 years (as far as Torries are concerned, for Labour this would be inconceivable).

This problem is just too big to be sorted (for current politicians with current attitudes of public opinion), similarly to debt to GDP ratio in the West.

[tonyedgecombe]

I don't think they have any intention to raise the age to 75, or at least they don't think they can get away with it. This is about setting expectations, I fully expect them to turn around and say sorry, you were right, we will only raise it to 70 instead.

One thing to remember about this group of politicians is balancing the books isn't what they want, it's all about reducing the size of the state. It's ideological rather than practical. They devoured too much Ayn Rand in their teenage years.

[Jean]

Free flysuits and opioïdes at age 50?

[Bankai]

Another reason why UK state pension won't get much worse - it's already the worst in OECD.

https://www.weforum.org/agenda/2018/02/ ... ng-salary/

[jacob]

What's the floor? The reality breaking point? Resolutions of reality or liability conflicts are either moral or natural in order. This euphemism essentially describes solutions that are proactive respectively reactive.

[Bankai]

I guess the floor is not having old people starving to death or otherwise living in misery? Considering large proportion of current/future retirees relies on state pension alone and small proportion of people in their 70s are able to work in available jobs, both slashing the state pension or vastly increasing the age would result in just that.

Don't get me wrong, I agree that the system is broken and some change is required, but I don't think the increase in age to 75 is the right answer, neither do I think politicians have the cohones to make some tough decisions.

[IlliniDave]

Seems like the math is forcing something to change, and people living longer largely means they are old longer. I don't think expecting everyone to work to 70 and beyond is reasonable (and it would compel someone to hire them). That puts more burden on the individual (as jacob noted), but that's why we prize individual liberty so much--it empowers us to handle our responsibilities. It will be kind of amusing, but also sad, the first time I hear someone say, "I'm going to FIRE at 70."

In the same way the corporate world is weaning it's workforce off of pensions, governments may need to start doing the same thing. At least here in the US, the gov't is pretty good and maintaining an army and at some facets of law enforcement, but in most respects they are the very last people that should be counted on to handle money responsibly. Of course if it is left up to individuals to provide for their future selves, a number will fail, some through negligence, but some through no real fault of their own. So it's not a perfect solution.