Surviving the pensions crisis means encouraging work

The Queen’s 90th birthday has quite rightly dominated the media over the past week.  Her Majesty continues to break all sorts of records, spending longer on the throne than Queen Victoria and being our oldest ever reigning monarch.  But longevity should no longer give cause for surprise.  The oldest participant in the London Marathon was 88, a mere whippersnapper compared to the 92 year old who ran the event in 2015.

Robert Fogel, an economic historian based at Chicago, was one of the first people to draw attention to the dramatic lengthening not just of life spans, but of active life which was about to take place.  In his Nobel Prize lecture in 1993, he correctly predicted that the number of older people in the US would rise much more rapidly than the Census Bureau was predicting.  Now, there are 45 million Americans over the age of 65, a big chunk of the entire population of the UK, and 6 million aged 85 and over.

Fogel worried about the implications for health care and pension costs, concerns which are widespread in policy making circles today.  In terms of pensions, the obvious solution is to raise the retirement age.  But governments face resistance to this.  Even George Osborne has not dared to go further than legislating for an increase in the pension age to just 67 – in 2028!  Retirement is popular.  A key reason, as Fogel pointed out, is the vast increase in the supply and the quality of leisure time activities for what he quaintly described as the “laboring classes”.  In addition, the relative prices of leisure services such as movies, television and travel have fallen substantially.

Yet there are signs of behavioural change taking place from the bottom up.  Last November, the Department of Work and Pensions (DWP) published a report on the employment statistics of workers aged above 50 over the past 30 years.  The number of people in employment over 50 has grown faster than the population aged over 50.  A lot of the growth has been amongst women in the 50 to 64 year old age group.

In addition, the employment rate for people over 65 has doubled since the mid-1980s, from 4.9 per cent of the relevant population to 10.2 per cent.  Initially the rise was in the 65-69 age group, but over the most recent decade, the over 70s have increased their participation rate in the labour force to 9.9 per cent.

The problem of how to fund the pension costs of an ageing population remains a serious one.  We need to encourage more older people to work.  Economics can help, but the mainstream approach has its limits.  This essentially describes an equilibrium situation, and then tells us what the new equilibrium will look like after a change has disturbed the old one.  But the pensions issue is about how we adapt as a society to a situation which is out of equilibrium, how we manage the process of change in disequilibrium.  Behavioural economics has more potential to help.

As published in CITY AM on Wednesday 27th April 2016

Image: Chelsea Pensioners by Defence Images is licensed under CC BY 2.0

Share this post

ALEX O’BYRNE

Associate

e: aobyrne@volterra.co.uk
t: +44 020 8878 6333

Alex O’Byrne, Associate at Volterra, is an experienced economic consultant specialising in economic, health and social impact, economic strategy, project appraisal and socio-economic planning matters.

Alex has led the socio-economic and health assessments of some of the most high profile developments across the UK, including Battersea Power Station, Olympia London, London Resort, MSG Sphere and Westfield. He has significant experience inputting to EIAs and s106 discussions as well as drafting economic statements, employment and skills strategies and affordable workspace strategies.

Alex is also experienced at economic appraisal for infrastructure. He was project manager of the economic appraisal for the City Centre to Mangere Light Rail in Auckland. He also led the economic and financial appraisals of the third tranche of the Transport Access Program for Transport for New South Wales, in which Alex developed and employed innovative methodological approaches to better capture benefits for individuals with reduced mobility.

He is interested in the limitations of current appraisal methodologies and ways of improving economic and health analysis to ensure it is accessible to as many people as possible. To this end, Alex recognises the importance of transparent and simple to understand analysis and ensuring all work is supported by a robust narrative.

Alex holds a BSc (Hons) in Economics from the University of Manchester and he was a member of the first cohort of the Mayor’s Infrastructure Young Professionals Panel.

ELLIE EVANS

Senior Partner

e: eevans@volterra.co.uk
t: +44 020 8878 6333

Ellie is a partner at Volterra, specialising in the economic impact of developments and proposals, and manages many of the company’s projects on economic impact, regeneration, transport and development.

With thirteen years experience at Volterra delivering high quality projects to clients across the public and private sector, Ellie has expertise in developing methods of estimating economic impact where complex issues exist with regards to deadweight, displacement and additionality.

Ellie has significant experience in estimating the economic impact across all types of property development including residential, leisure, office and mixed use schemes.

Project management of recent high profile schemes include the luxury hotel London Peninsula, Battersea Power Station and the Nova scheme at London Victoria. Ellie has also led studies across the country estimating the economic and regeneration impact of proposed transport investments, including studies on HS2 and Crossrail.

Ellie holds a degree in Mathematics and Economics from the University of Cambridge.