18 June 2007
The Rt Hon John Hutton MP
Secretary of State for Work and Pensions
The Challenges and Opportunities of Longer Working Lives
Social Market Foundation, London
Monday 18th June 2007
[Check against delivery]
Over the last fifty years, there has been a seismic shift in the balance between the proportions of life spent in work and retirement. In 1950, of those men that made it to retirement, the average age for stopping work was 67 and the average retirement 10 years. Today, not only do the vast majority of men survive to retirement, the average age of retirement is actually 3 years earlier – at 64; with an average retirement doubled at 20 years and the proportion of adult life spent in retirement increased from less than a fifth to nearly a third.
Growth in life expectancy at 65 also shows no sign of slowing down. For the last 30 years it has grown every year by thirteen weeks for men and nine weeks for women. By contrast between 1950 and 1975 the annual improvement had been of slightly more than three weeks for men and less than five weeks for women.
Now – for the first time in our history – there are more people over state pension age than children in Britain.
One in five babies born today will live to be 100. The number of Centenarians is projected to increase from around 10,000 now to 150,000 in 2050 – that’s 15 times as many in less than 50 years. And the first 120-year old in the UK is expected in 2068. This would mean she is currently about 59 now and just one year away from receiving her first State Pension payment – something she could continue to receive for 60 years.
Some scientists have even gone as far as to say that the first person to live to 150 may already have been born.
The fact that we are living longer is of course a cause for celebration. A testament to the ingenuity of mankind; to the tremendous advances in medical science and technology together with a critical shift in the working patterns of many modern economies. But it also creates seismic pressures on our economy; on our labour market and pensions system.
We’re not alone in grappling with these issues – the ageing population is a truly global phenomenon for all of the developed countries. In the US the pension age has already started increasing and will reach 67 in 2027; it is increasing from 60 to 65 in Japan. And it has recently been increased in 6 EU countries including Austria, Slovakia and the Czech Republic.
Across the EU, the working age population is expected to fall by a fifth between 2000 and 2050. That’s 43 million fewer European workers in just fifty years. And in that same period, the number aged 65 and over will increase by 42 million. This raises obvious questions for our economies, our welfare systems and ultimately, for the quality of our lives.
What is clear is that the UK can not remain immune to this process of change. We can not hope to provide an adequate or sustainable response to these challenges if our people become prematurely detached from the labour market.
When the Pensions Bill was presented to Parliament earlier this year, MPs made an historic decision; to legislate for an increase in the State Pension Age to 68 by 2046.
It was a big step to ask one Parliament to set a course for forty years. But it was absolutely the right thing to do. To lock in stability in pensions policy; to maintain the affordability and sustainability of a pensions settlement that will allow future generations to plan ahead with confidence.
What was also significant was that this change commanded a universal, although maybe initially reluctant, consensus. For if we did not increase the State Pension Age, it would require the equivalent of around a 4p rise in the Basic Rate of income tax in 2050 to pay for a population spending more and more of their lives in retirement.
As unpopular as it may be to talk about saying people should work longer – the simple fact is that if we aren’t prepared to increase the State Pension Age, we will simply pass an ever greater and frankly unsustainable burden onto our children and grandchildren. We shouldn’t do this – we need to discharge our responsibilities to future generations, not duck them.
But delivering a truly sustainable response to the challenges of supporting longer lives requires much more than a Government edict about the age of entitlement for the State Pension. It needs a fundamental culture change in our society – one that sees changes in working patterns less as an imposition forcing people to change their behaviour – and more as a reflection of the new expectations of individuals and communities in a changing society.
There is an all-too-prevalent culture in our society which equates age with retirement. And it’s not helped by the focus of attention so often placed on the State Pension Age.
The idea of a single arbitrary age at which people are entitled to a State Pension is too often seen as an indiscriminate sell-by date beyond which people can be written off; irrespective of their personal capabilities, the state of their health or their wishes. Whereas some cultures are renowned for the way they look up to their elders; our culture today is more likely to cast them aside.
Yet research into older people’s preferences consistently indicates that what they value most is being able to control their choices of work and retirement. A study in 2005 found that for 50-69 year olds, half of those in work wanted to carry on working past formal retirement and most of those who were retired would have worked for longer if there had been part-time or flexible work options available.
We are making progress in helping people to work for longer. Those aged over the State Pension Age accounted for over half the increase in employment over the past year.
But with older workers representing one third of our potential future work force, our continued economic success depends upon ensuring the increased contribution of older people.
The benefits of getting this right will be more than purely economic. Having the health, skills and support to remain in paid employment offers the prospect of greater freedom for more people to build up their financial position - and in doing so, the opportunity to enjoy a more independent, active and fulfilling retirement.
And this right of the individual to work is a hugely important civil right. It has dominated much of the debate about political economics – from the first welfare state of Beveridge and Atlee to the New Deal and our current welfare reforms. Choice and flexibility for older workers is as much about social justice as it is about economics. But just as we have acted to extend the right to work to disabled people – through the Disability Discrimination Act and welfare reforms – so now we must act to defend the same right of older people to work.
We’ve been doing some thinking about how we can improve the support available for older workers in modern Britain. This has included taking some external advice – and I’m pleased to see one of those advisers – Professor Nicholas Barr – with us on the panel this morning.
What I’d like to do with the rest of my remarks is to offer some early thoughts and questions about how we can make further progress towards this crucial goal.
In essence, I believe there are two fundamental issues.
Firstly, what more can our active labour market policies do to support older people in returning to the workplace and progressing within it - especially with respect to managing health conditions and developing their skills.
Secondly, how we can overcome cultural, regulatory and institutional barriers that restrict the opportunities for older people to work – including how we change attitudes within the workplace and give people greater flexibility over how and when to work and save.
Let me say a few more words about each.
Firstly, employment support.
Ill health is both a cause of people leaving work early and a barrier to returning to work.
The proportion of people reporting health problems and disabilities increases with age – from 44% of those aged 50-54 to over 60% of those aged 60-69.
An independent report published last year on the value of work concluded that employment is central to individual identity, psychosocial needs, physical and mental health and of course, economic wellbeing.
It found that unemployment can lead to higher mortality rates, poorer physical and mental health, and higher hospital admission rates; and returning to work from unemployment could actually improve health by as much as unemployment damaged it.
And yet of those aged between 50 and the State Pension Age – nearly 30% - or 2.6 million people – are not working. And 1.4 million are claiming sickness and disability benefits.
In fact, just under half of Incapacity Benefit claimants are aged 50 and over. And in the five years before the State Pension Age, nearly 14% of women and over a fifth of men are claiming Incapacity Benefit or Severe Disablement Allowance.
Our £360 million investment to extend Pathways to Work to every part of Britain will provide groundbreaking support to help many on Incapacity Benefit return to work. And regulations coming into force this month have extended the intensive activity phase of the New Deal to those aged 50-59 - offering wider access to jobsearch help and advice, soft-skills training and work experience.
But if we are to be successful we need to go further in eradicating artificial boundaries in the way we construct our active labour market programmes, so we provide as much commitment for older workers as for younger workers.
From 2010, as women’s State Pension Age increases and Pension Credit disappears for those aged 60-64, so Jobcentre Plus and other welfare providers will need to be able to engage effectively with this expanding group.
Part of the support needed will be quality advice. Our Pensions White Paper announced the intention to pilot face to face guidance for people making choices about work and retirement. Research suggests that many people take decisions about work and retirement based on insufficient information – or insufficient consideration of the information that is available. Findings by the Centre for Research into the Older Workforce suggest that people say that with better information and support in understanding the options, they would have been able to work for longer.
Enhanced employment support for older people must also have an earlier and more focused assessment of their skills.
With Lord Leitch predicting that the demand for low skills is likely to continue falling, with some 850,000 fewer low skilled jobs by 2020, our welfare system needs to raise its game on skills; and support for older workers will be particularly important if we are to close the current skills gap they face.
Around a fifth of those aged between 50 and the State Pension Age have no qualifications compared to around a tenth of those below 50. And someone over the age of 55 is only half as likely to participate in training as someone aged between 35 and 44.
The new Skills Pledge launched last week showcases a public and voluntary commitment made by 150 leading employers to train all their staff to at least level 2 in the workplace.
And with a 2004 National Audit Office report highlighting that the “shelf life” of skills has reduced to around 3-5 years, investments in training will on average be needed more frequently and crucially could be recouped in relatively short periods. On this evidence, employers should more easily see the benefits of investing in training older workers.
Research also shows that older workers in fact often show lower levels of short term or non-certified sickness absence than younger workers. And yet one fifth of employers today still say that some jobs in their organisation are more suitable for some age-groups than for others – with a tendency to favour workers aged between 25 and 49. And yet evidence for those aged 70 suggests that, with very few exceptions, work performance does not deteriorate with age.
This leads me to my second point – tackling the barriers in our society which restrict the opportunities for older people to work.
We’ve made real progress in tackling discrimination and giving older people greater flexibility of when and how they work and save.
The Age Discrimination legislation has, for the first time, given people the right to challenge age discrimination in the workplace. And the new default retirement age will mean that employers can no longer force an employee to retire before 65, without objective justification.
From this April, we have extended the right to request flexible working to carers – when previously it was only available to parents of young or disabled children. And the possibility of extending this to older workers will be considered as part of an evidence-based review of the default retirement age in 2011.
In April last year we reformed the arrangements for State Pension Deferral to make it more flexible and generous for individuals. We removed the 5 year time limit on deferral and introduced new payment arrangements that mean for the first time, people who defer for over a year can now receive a taxable lump sum instead of an increased pension.
But I believe we must look to go further.
In many occupational schemes, employees can choose when to start taking their occupational pension once they have reached the scheme’s retirement age. Following last year’s tax changes, they can now begin drawing down their occupational pension while continuing to work for the same employer - giving them much greater flexibility to plan a gradual move from full-time work to retirement.
By creating the new system of Personal Accounts as an occupational pension, we should be able to extend this flexibility to millions more people – not just achieving a step-change in pension saving but vastly diminishing the significance of the State Pension Age as a focal point for beginning retirement.
And as with automatic enrolment into personal accounts - where people will have to make an effort to stop saving rather than to start – there is an argument about whether we should be looking at the possibility of making it more normal for people to automatically defer their State Pension entitlement unless they actively choose not to.
For example, rather than assuming that people reaching State Pension Age will want to claim and presenting some information on an alternative option to defer; assuming instead that they will defer but giving them the option to opt to take their pension straight away.
And we could increase the focus on options for deferral if we also look further at the Pensions Commission’s proposal to allow people the option of deferring some of their State Pension rather than all of it.
The gains from deferral can really be quite significant. If, for example, an individual defers a retirement pension of £100 for 5 years they could boost their eventual weekly entitlement when they do claim to over £150.
For decades, retiring early has meant stopping work in your fifties. But as future generations live longer and healthier lives, they will increasingly see giving up work in their sixties as taking early retirement. It will be perfectly possible to stop work then, but the preferred norm for many will be to work long past the State Pension Age.
Ultimately flexibility and choice can no longer solely be the preserve of the young. We must raise our game in supporting older people across Britain.
Government can and must play its part – in helping to bring about the culture change I referred to earlier; in improving the focus of employment and skills support for older people; outlawing age discrimination and promoting greater flexibility and choice over how and when to work and save.
But society as a whole must also drive this change.
As a Government, we’ve said that we will review the issue of mandatory retirement ages in 2011. And that this review will be tied to evidence on specific social trends. I believe that as the workforce gets older, so employers will begin to see retirement ages as increasingly outmoded. The days of people counting down the time until they hit 60 and get their carriage clock are diminishing as more employers recognise the value of holding on to the expertise of older workers for as long as they can.
In my Department we have already abolished the mandatory retirement age and that is something I believe more and more organisations are going to choose to do in future years.
Likewise we must all do everything we can as a society to recognise and encourage the contributions that older people can make beyond the traditional workplace - through their role as carers and volunteers.
Already there are over 3 million carers aged 50 or above in Britain today. And the value of this role can only increase as families face the extended caring responsibilities of lengthened parenting and supporting elderly relatives.
There is absolutely no reason why the later decades of a person’s life should not be as fulfilling as the earlier ones.
There could not be a more important time to get this right. As the Baby Boomers begin to reach retirement, so the demographic challenge with which we are now all so familiar will really begin to bite.
The question is how we respond to the opportunities it presents. How we support this generation, whose values are grounded in the history of our nation where people have lived and worked to serve their country; and who still have so much to offer in helping to meet society’s needs.
I’m keen to get your thoughts today on how we can all respond to this challenge. Together I believe we can and must build the consensus across society needed to bring about the culture change on which our ambitions of economic prosperity and social justice will ultimately depend.
