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The retirement revolution is only just beginning

The writer is author of ‘Extra Time: Ten Lessons for Living Longer Better’

We can’t keep putting off the day of reckoning. That’s President Emmanuel Macron’s message to French voters who — understandably — don’t want him to raise their pension age. He’s late to the party: most other European leaders have already wrestled with this horror. But they’ve barely begun to realise the extent to which the social contract is being ripped apart because of the growing gulf between citizens who are hale and hearty at 70 and embarrassed about their free bus pass, and those who are “old”. 

If you want to assess whether you are headed to a nursing home or the beach in your seventies and eighties, a number of factors are strongly correlated with living better longer, including education level, diet, income and being married (the last especially if you’re male). None of these will protect against an accident or a horrific disease: luck plays a role. But they do load the dice. If we’re not careful, a long-lived elite could end up getting more than its fair share from welfare states which should be protecting the needy.

European governments are increasingly pegging retirement ages to life expectancy. This makes sense. The German Chancellor Otto von Bismarck, who in 1881 announced an early version of the state pension, would be amazed that today’s Germans draw their pension at 65 (soon to rise to 67). To qualify for Bismarck’s pension you had to be 70 — an age few people reached. Nowadays, the average German lives to a mighty 81.

But although life expectancy has roughly doubled between Bismarck’s time and our own, the gains are not shared equally. Higher-income people are living longer than their lower-income compatriots, and increasingly so. In 1930, the richest fifth of American men could expect to live on average five years longer than the poorest fifth. But for those born in 1960, the gap is around 13 years. There are similar gaps in France and the UK.

There have always been differences — and newsworthy outliers. A Frenchwoman called Jeanne Calment, born in 1875, was a child of six during Bismarck’s reform and was 122 when she died in 1997. But now, a significant group seem to be living much longer.

The US National Academy of Sciences has tried to model what this might mean for welfare. It finds that the top 20 per cent of American earners born in 1960 stand to benefit into six-figure sums more in lifetime benefits, net of tax, than the bottom 20, simply by virtue of staying alive. So big is the gap, according to the researchers, that tweaking disability payments wouldn’t be sufficient. The only policy to move towards restoring the balance would be to reduce social security benefits for the top half of all earners. This would be revolutionary.

Welfare states are a powerful expression of social solidarity, one of the greatest achievements of the 20th century. One principle of universal benefits such as pay-as-you-go pensions is that citizens should get out, broadly, what they put in while helping others along the way. But that may have to change.

Even more crucial than how long we live is how well we age. A recent study of older Brits and Americans suggests that the wealthy can expect around eight to nine more healthy (and therefore enjoyable) years of life than the poor. Other studies find even bigger differences between deprived and affluent regions of the US and UK. Shamefully, this “healthy life expectancy” gap is growing in almost every country. It is highly correlated with poverty which can lead to stress and poor diets. In the US, heart problems and opioid “deaths of despair” have already stalled overall life expectancy.

This feels like a particularly chilling example of the Matthew effect. As the bible says, “For to every one who has will more be given”. If you’re lucky enough to live a long and healthy life, that’s wonderful. But governments should be more generous to those who are in a less enviable position.

My next-door neighbour recently celebrated her 85th birthday by parachuting out of an aeroplane. She attributes her energy to Swiss genes and two new knees. But a few streets away, at my local chemist, I regularly see another neighbour who looks after her disabled son and has heart problems. She used to work in a shop, but her feet hurt too much. She is 63.

Given that we are living longer, it is reasonable to ask people to work longer, at the very least in order to maintain the same share of life spent in retirement as previous generations. But my two neighbours are not living longer equally. Which makes me wonder: is it fair to ask everyone to work longer, especially in physically demanding roles? The French proposals recognise that hard physical work may no longer be possible in old age — and offer extra pension credits. But will there be an age beyond which a significant segment of voters is simply unable to work? And how would we avoid the moral hazard which could result if we gave people more support based on their individual expectations for a healthy long life? This is something the British government should consider as it consults on raising the state pension age.

This century will see ageing societies forced to rewrite longstanding social contracts. This is not easy, as President Macron is finding. It’s rightly difficult for politicians to undo promises their predecessors made — and which voters still rely on. But gingerly raising retirement ages to improve equity between the generations is only the first step. Soon, we must think about rewriting the social contract even within generations. If you think the French reforms are politically explosive, you ain’t seen nothing yet.

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