Britain must solve its demographic problems if it is to pay for retireesby Norma Cohen / September 17, 2014 / Leave a comment
Just over a century after Britain put in place its first effort to address dire poverty among the elderly, it faces another crisis for the aged.
Repeated reforms through successive governments in the second half of the 20th century were a patchwork of measures which balanced thin payouts to those too old to work against generous incentives encouraging workers to save.
In doing so, it sought a system that both alleviated old age poverty while remaining fiscally sustainable, and in the closing years of the 20th century, it appeared to do both. But in recent years, it has become clear that it did neither.
Britain, of course, is not alone in facing this dilemma; nearly every developed economy, along with many fast-growing countries, faces similar challenges.
At the heart of the matter is what is perhaps man’s greatest achievement of the 20th century: the extension of human life. In Britain, just under half of all people born in 1900 would live to age 50.
Men lucky enough to reach age 65 in 1911 were likely to live another 11 years, and that remained pretty much the case for the next 60 years. By 1971, that had only risen by one year. But in the following 40 years, post-65 male life expectancy rose by a further six years. Between 1971 and 2010, the cost of providing a pension, on average, rose by a third.
And it will not stop there. By 2015, life expectancy for men aged 65 is projected to be nearly 26 years and for women aged 65 it will be more than 28 years.
But it is not just rising longevity that is causing governments, including in Britain, to cut pension benefits.
Fertility rates have fallen so far and so fast that the nation is not producing enough babies to keep the population stable. That means that tomorrow’s workers will have to pay taxes high enough to support many more retirees than they do today.
In 1971, 2.3 per cent of the population were over the age…