Not only is the state pension age going up, but we over-50s are planning to work for longer. So what are the long-term implications of this for the UK economy?
With life expectancy showing signs of peaking for the current middle-aged generation, and a widespread expectation that it will then start to decline for the more sedentary, junk food generation that follows, it is perhaps hardly surprising that we are considering working longer, in many cases much longer, than we would have imagined a couple of decades ago. After all, how can we expect the shorter-lived generation to follow to pay our pensions and care costs?
There are also other factors at play here. University tuition fees will have an impact at both ends of the age spectrum. Parents who have often been having children later in life are likely to be obliged to work longer to support their children in tertiary education (particularly if they have a bent for medicine or architecture), whilst a generation burdened with significant debt before it even gets into the workplace and the housing market may not be economically well-placed to fund either its own or its parents’ pension and care costs.
Of course being a healthier generation also has its part to play in the desire to work for longer, as increased life expectancy changes perspectives on how long a retirement we might enjoy. This again cuts both ways, as on the one hand it is possible to contemplate an active retirement at a more advanced age than would have been the case a generation ago, but on the other concern about how long savings might have to last to supplement pensions, and what care costs might be incurred in extreme old age also play a part in this process.
Also of concern in this respect is the position in respect of mortgage arrears among the over 60s, again identified in the SAGA survey. Traditionally, in a world of repayment mortgages, this generation had cleared its debts and was thus ready to enjoy retirement with significant property equity as a bulwark against an uncertain future. However, the rise of the endowment mortgage, and the spectacular under-performance of these products, has left many of those approaching retirement age facing great difficulties in repaying mortgage debts, again with the result that a longer working life is required.
Another factor in the difficulties being experienced by the over-60s in meeting mortgage repayments is likely to be the difficulty for the older generation in getting back into the job market if made redundant in their 50s or 60s, which is again well-documented. There is a wealth of experience and knowledge here going to waste, but again there is a flip side to this, which brings me to another major concern about plans for the older generation to work for longer.
We are providing a far greater proportion of our children with a university education than has ever been the case before, and not unnaturally they will expect to command jobs that reflect the extent of their education, not least because they have invested heavily in that education in the form of tuition fees. The first seriously indebted generation has bred a next generation for whom debt is going to be endemic from the very start of their working life, and the only realistic chance of effectively servicing that debt is to secure a well-paid job.
Yet the older generation is also depending on retaining those well-paid jobs, and this is likely to create a significant bottle-neck, which will exacerbate still further the current chronic problems with youth unemployment. And of course this also delays the repayment of student loans, which creates further difficulties for the current and future governments.
It appears that the only realistic way out of this is for the UK economy to undergo a period of sustained growth, generating new jobs to satisfy demand at both ends of the age spectrum. But how difficult is that going to be to achieve against a background of economic crisis in the Eurozone, an austere atmosphere of retrenchment in the banking sector and a mountain of public sector borrowing? I can be very unkind about our politicians, but I don’t envy them trying to extricate us from this one.