Could mass retirement prove to be a short-lived and unrepeated 20th-century phenomenon?

We enjoyed a demographic dividend that is coming to an end

October 30, 2020
Photo: Kirsty O'Connor/PA Archive/PA Images
Photo: Kirsty O'Connor/PA Archive/PA Images

Britain has had a culture of retirement—a workless period with a guaranteed income in old age—since at least the middle ages; the poet Geoffrey Chaucer in the late 14th century was granted several pensions for his contributions to culture. Henry VIII granted them to monks and abbesses who did not resist as their monasteries were confiscated during the Reformation. Servants, soldiers and sailors could get them, too.

But the idea of mass retirement for all, roughly in the seventh decade of life and financed in large part by public funds, is a very modern idea. It stretches back not much further than a century, not only in Britain, but in the United States and indeed, in much of the industrialised world.

Now, however, that idea of mass retirement in early old age is under threat. The threat comes not from a public less enamoured with pensions in retirement. If anything, despite rising workforce participation rates at older ages in Britain and elsewhere, the demand is for more generous retirement benefits.

The threat is from two demographic forces; the first of these is longer lives, an otherwise welcome development. The second is falling fertility rates in much of the industrialised world. That leaves a smaller percentage of each nation’s citizens to produce the output that makes up GDP and to pay the taxes that support older adults.

Indeed, we may one day look back and conclude that mass retirement at around age 65—currently a fairly healthy age for most—was a brief, 20th-century phenomenon that is unlikely to be repeated.

Britain’s pension system was created at a time when the industrialised world enjoyed what economists call a “demographic dividend”: a pick-up in a nation’s economic growth when its fertility rate slows down, so that a greater percentage of its population is of working age. This happens before a nation becomes wealthy enough to see a large percentage live into advanced old age.

But now, that dividend is unravelling in Britain and elsewhere. The population pyramid is now an obelisk, with many elderlies to support while the percentage at working age declines. The fall in fertility is so steep that the UN estimates population growth in industrialised economies will not only stop, but begin reversing by 2100. Other estimates suggest the decline will begin even earlier. The overall economic picture created by these twin forces is one of reduced national output and slower productivity growth, as the proportion at work dwindles. Meanwhile, the cost of supporting the growing number of elderly and infirm rises.

Understanding how we got here may help us to see a path forward. In Britain, the impetus for pension provision was part of wider demands for an insurance safety net in response to the upheavals caused by industrialisation and urbanisation in the mid- to late-19th century. From the early 17th century, the sole safety net consisted of the Poor Law, left to the administration of local parishes who doled out relief either in the form of subsistence payments or an offer of a place in a “workhouse.” But from around 1870, Poor Law commissioners actively discouraged any form of relief but the workhouse.

While those living in multi-generational families on agricultural smallholdings were likely able to absorb frail workers, in urban areas, factories required increasing levels of technological proficiency, which led to shrinking opportunities for older workers who had to compete for jobs with the younger and better skilled. An 1890 study of Poor Law applicants found that above the age of 60, the percentage of workers seeking relief rose sharply for each successive age quinquennial.

Masses of destitute elderly did not automatically prompt a political response. Indeed, groups such as the Charitable Organisations Society argued against pensions for all, on the grounds that the policy would encourage sloth and deter thrift.

Demands for pension payments for older adults grew out of their perceived role in siphoning off “surplus” labour. In the interwar years, unemployment rates in Britain were at previously unseen levels. The popular perception was that this could only be tackled by cutting the number of workers competing for jobs. Pensions for older adults seemed a solution. As unemployment remained above 10 per cent, demand grew for state pensions for all at age 65. In 1940 legislation, state pensions became payable only to those who had left the workforce, to create openings for younger workers. Similarly in the US, ravaged during the Great Depression by high unemployment, state social security was urged as a vehicle for the removal of surplus labour. In 1934 a California doctor, Francis Townsend, popularised a plan to pay $200 to every adult over age 60 provided the recipient did not work and spent all the money every month. So wildly popular was this that it gave a head of steam to what became FDR’s New Deal, creating social security. “Dr Townsend unleashed a new force in American politics,” wrote FDR biographer William Leuchtenburg: “The old people.” To date, that political reality has not changed, either in the US or Europe.

For a long time, especially in Britain, “the old people” were a bearable strain on national finances. For one thing, state benefits were meagre. In 1981, two-thirds of pensioners lived on incomes so low they were entitled to supplementary benefits. This compared with only a fifth of those of working age.

But one reason Britain was not quickly overwhelmed by pension cost was that although average longevity was rising, that mainly reflected the sharp decline in infant and childhood mortality. Longevity at older ages rose slowly. “Most of the big gains in life expectancy have been in recent years,” according to Andrew Scott, who teaches economics at London Business School and is co-author of The 100-Year Life. Longer lives for older adults are what is now straining the system. Indeed, a look at UK data shows that in the 50 years between 1911 and 1961, the average number of years that a British 65-year-old man could expect to live rose by only a single year. By 1971, that had risen by nearly another full year and by 2010, life expectancy at age 65 was two-thirds longer than it had been a century earlier.

Moreover, it has now become clear to scientists that human longevity does not have a “natural” limit but is malleable, at least to an extent. Demographers Jim Oeppen and James Vaupel have shown that every time scientists believe they have established the outer limit of human longevity, it has been exceeded. Better nutrition, antibiotic use and adoption of vaccines allow us to live longer in good health than we once did. At age 65, women on average still have a quarter of their life to live, while men have a fifth. The Office for National Statistics suggests that those with so many years of life ahead should not be classified as “old.''

Scott argues that this requires us to think differently about the habits of a lifetime. Instead of an unbroken working career that ends in the seventh decade, periods of work could be interrupted by bursts of new learning that will allow us to be economically productive until well into what is now considered old age. It would be, truly, a “100-year life.”

Mass retirement took hold in Britain—and across the industrialised world—at a time when most nations were producing more than enough babies to keep their populations growing and most workers did not live many more years after employment ended. But by 2010, women could expect to live 19 years into retirement, though state pension ages had begun to rise, while men could expect 12.1. Meanwhile the number of newborns in Britain is too few to keep the percentage of the population that is of working age stable in the future.

That shift is fairly universal. Almost no industrialised nation shows a different pattern. The ability to divert either tax revenues or private savings sufficient to finance that many years of idleness is moving beyond the means of both states and individuals.

Moreover, with the shift away from heavy industry, the idea of what constitutes “work” has changed radically since retirement became a mass idea. The decades of leisure, now known as “retirement” and which we have come to think of as our legitimate right, are likely to fade into history.