25
Examination of witnesses
Dr Jonathan Cribb and Catherine Foot.
Q52 The Chair: Welcome to the fourth evidence session of this Economic Affairs Committee inquiry into preparing for an ageing society. We are delighted to welcome our two witnesses today. Let me introduce Dr Jonathan Cribb, associate director and head of retirement, savings and ageing at the Institute for Fiscal Studies, and Catherine Foot, director of Phoenix Insights and an expert on this issue as well. Thank you both for coming today. I should say that we are broadcasting live on parliamentlive.tv and a full transcript is going to be taken. We will make it available shortly after the meeting so that you can make any corrections that are needed.
Let me start by asking you a general question. That does not mean it is an easy question. What do you see as the main economic challenges of an ageing society? In particular, we are interested in what the balance is between the challenges driven by longevity and ageing per se, and the challenges driven by a falling fertility rate at the other end of the age spectrum. Perhaps you could also, in your answer, say whether you broadly think that these trends are a success story, given that we are an ageing society and they reflect success in the past 100 years of health and other public policy initiatives, or whether it is a negative challenge and a burden for the future. What is the balance between those two characterisations?
Dr Jonathan Cribb: Thank you for having me. Broadly, we can see the ageing population as a result of three things: one that is almost entirely positive, one that I do not have much opinion about and one that is probably negative. The positive is a longer lifespan. Particularly if you go back 50 years or so, people had radically fewer years at older ages compared with now, and that is a form of wealth for us as a nation. Dealing with that success is difficult, but broadly it should be seen as a success.
The second thing is that we are going to have a slightly older population because of variation over time in how big cohorts are. We had a baby boom throughout the 1960s. That cohort is bigger than what comes before. As that cohort reaches retirement and the older ages, the fraction of the population that is older rises as well. To the extent that those waves go up and down, that is a temporary thing to deal with.
The last is fertility. I am not the person just to talk about fertility all the time, but, clearly, if you have well below replacement rate fertility levels for a long time, that means a much smaller number of children and, ultimately, a much smaller number of working-age people, who do most of the paid work and are taxed more than the rest of the population.
I have two quick things to answer quite a few of your questions. At least on the ageing side, we should see this as a challenge in light of that positive story about higher longevity. Dealing with the fertility things is a separate issue. I mostly, not entirely, see this challenge as a fiscal one. A large amount of public spending is undertaken on health and pensions—roughly 15% of GDP together. As you know, large numbers of people who are older being paid their state pensions and using the NHS creates a fiscal challenge for us. That is the main challenge I see there.
Catherine Foot: I would agree with everything that Jonathan has just said, absolutely. You have, first and foremost, meeting those pension and health costs of this larger cohort. We have, of course, as I am sure you have discussed previously, these two baby booms. There is that first one, immediately post World War II, of people who are now around 80, and that second, slightly larger and longer baby boom of people born in the 1960s, peaking around 1965, who are now 60. Over the next period, there will be those immediate challenges of those two large cohorts moving through in different ways, first the younger one just beginning to be in receipt of pensions and the older one beginning to max out on their health and social care costs. That is right.
Also, the issue of individually longer lives, as opposed to our changing population age structure, offers a really significant individual economic challenge about how you smooth income effectively and efficiently over that longer life course. How do you make your money last and do you need to change various different inflection points in a life course about your economic status? Do you change how long you are working for, when you begin to retire and what that retirement looks like? Do you change when you are educating yourself and retraining and learning over the course of a longer life?
I might also add that we are not all experiencing this ageing society as individual economic units. We are all typically ageing in different forms of families, so there is also something for me about our ageing society bringing us the implication of four generations of a family consistently now being alive at once much more often than previously. Sometimes now five generations of a single family are alive at once. I think we are going to come on to this later, but this brings interesting issues around the transfer of wealth between those generations and how you reconcile an economic model that says that healthy working-age adults ought to be working with a model that says that healthy working-age adults also ought to be providing some care for older relatives who need it, as well as for dependent children.
You asked also about whether this is a good or a bad thing. I agree with you that it is literally an existential good. It is more time for people on the planet to do the things they want to do, be the people they want to be and spend time with the people they love. I rather like, though, Laura Carstensen’s analogy for how, despite this being a fundamentally positive development, we need to be thinking about what to do about it quite differently. She is a professor of the Stanford Center on Longevity and has a playwriting analogy. She says, “Imagine if you’d written a 70-minute play”, the fairly obvious analogy being that a minute of the play is a year of your life. The producer comes along and she says to you, “You’ve got 20 more minutes for that play”. Would you just stick those 20 minutes on at the end of your plot and keep all your plot points the same, or would you think about where you are going to use that 20 minutes throughout your story to deepen the plot or extend a subplot?
There is something about the implications of longer life not all just needing to be the extension of the final phase, or the retirement phase, of life and how we react to that. We have reinvented all sorts of life stages in the past. We have invented teenagers and retirement.
There is something for me in the 21st century where the particularly crucial life stage we need to be thinking hardest about is that transition life stage. You could call it 55 to 70, maybe 50 to 75. Before that, almost everybody of working age is pretty much guaranteed to be a worker; after that, pretty much everybody is guaranteed to be fully retired. In the middle of that 20 to 25-year period is a huge diversity of experience and economic status. We are not very effective yet at recognising and reacting to that diversity in our policy-making.
The final thing I would say on the positive or negative is that it is unequivocally a negative thing that we are experiencing these longer lives in very unequal ways. As I am sure you well know, a woman in the 10% least affluent parts of society can expect to live about a third of her life in poor health, whereas a woman in the richest 10% of areas in this country can expect to live only a fifth of her life in poor health. As I am sure we will come on to, that inequality in our experiences of ageing brings huge implications across all areas of public policy.
The Chair: I like the play analogy. It is very good. I could do with a half‑time interval in my life. That would be nice.
Q53 Lord Londesborough: Good afternoon. Can we follow up on the point you raised about increasing pension and healthcare costs and get your views on the fiscal challenges of an ageing society? You mentioned the baby-boom generation moving into retirement. We also have early retirements triggered by the pandemic. What is your view on the relative importance of pensions and healthcare from a fiscal perspective? How interrelated are they? Should these issues be addressed together, or should they be dealt with separately?
Catherine Foot: The levers that one can pull to address the fiscal costs of pensions and our healthcare systems are quite different. I would suggest that of course they are interrelated for people’s individual lives—when you are able to work, when you need to draw on that pension and what your health status is. It is all closely related. But I would argue that, from a policy perspective, they are distinct challenges.
I would add that the pension challenge is quite neatly and almost entirely attributable, in a sense, to how many people of pensionable age you have and how generous you are choosing to make, for example, the state pension. What is your uprating mechanism? It is all quite directly related to ageing. In healthcare, it is somewhat different. If anything, often in broader public discourse the impact specifically of demographics and ageing on our likely future healthcare costs can be somewhat overplayed.
The OBR in its fiscal outlook is quite clear on its model for what drives healthcare costs. The demographics are a part of it, but technological change is a huge driver of increased healthcare costs also. In its last fiscal outlook, it had demographic changes contributing only 0.6% of the rise in healthcare costs over the period it was looking at. That is partly because, independent of age, what drives healthcare costs beyond technology more is proximation to death. Your individual healthcare costs escalate dramatically just as you are approaching death, and that is a factor independent of ageing. They are separate, and the issues in healthcare stretch above and beyond the direct implications of ageing.
Dr Jonathan Cribb: Both pensions and healthcare are important for the fiscal challenge of an ageing population, but health is more important. We spend roughly 10% of GDP on healthcare and adult social care and roughly 5% on state pensions and pensioner benefits. The contribution to the increased fiscal pressure is even higher for healthcare than that ratio, basically for the reasons that Catherine set out. Although there are some relationships between the issues of financing healthcare and financing pensions, they can be broadly thought about separately, just because there is a risk of trying to think about everything all together at once. They broadly can be kept separate in thinking.
The key point I would make is that the UK and other developed nations have quite a lot of experience now at controlling the cost of an ageing population through pension reforms. Notably, that is in the state pension age in this country, but also we have previously had reforms that reduced the value of state earnings-related pensions. Although we have a triple lock, the new state pension is not a giveaway for everybody. There are policy levers that policymakers here and in other countries have pulled to limit that cost.
We are in a very different situation with healthcare. We cannot go to other countries that have easily introduced reforms that we think could be politically viable in the United Kingdom that can limit the extent to which the state is spending on healthcare for older people, even if an elected Government wanted to do so. We have less experience of trying to manage that fiscal problem.
Q54 Baroness Wolf of Dulwich: I have a set of interrelated questions about the factors that shape incentives to stay in the workforce. I am going to phrase the first one slightly differently from the way I was going to originally, in light of what Catherine was pointing out: that, between the points where everybody is in the workforce and everybody is retired, there is a huge amount of different experience. If you have a population where you would like to encourage a substantial number of those in, say, the second half of that block of time to spend more time in the workforce—not necessarily just like that; it might be more up and down—what would be the most important policies that you would advocate that might change people’s engagement with the workplace in that second half of their notional working lives?
Catherine Foot: As you are suggesting, there are a lot of different reasons why somebody might be distant from the labour market, not working and not feeling interested in working or able to work in that life stage, so the policy levers for those different reasons are different. There is a group of people in that age group who are not working because they can afford not to. Policymakers would then need to decide whether that is okay or whether you want to be incentivising particularly high-skill, economically critical workers in that age group to return to the labour market, to make it harder to access their pension or whatever it might be. There is that group.
There is, of course, a group of people who are disabled and too sick either to work at all or to do the work that they have previously done. There is increasing evidence that really proactive support from the employer, and potentially from public services also, when somebody experiences the onset of a health condition or a new disability—to retain that connection to the labour market, think about a proactive plan after a period of sick leave to get them back into work and think about what work, either for that same employer or for a different employer, they would be able to continue to do—is really urgently needed. There is a review by Charlie Mayfield going on at the moment looking into how to make that work.
There is also really good evidence that job satisfaction relates very strongly to your likelihood of early labour market exit. There is a group of people who are fed up with work and would rather not do it any more. There could be all sorts of reasons why you get fed up with your job. It could be pay, the intensity of the job, a lack of match to your skills, a lack of a sense that it gives you any more of the meaning and purpose that you are looking for in your life, stress or hours.
We know that for workers particularly in their mid to late 50s, who are currently out of work but who say they would like to get back into work, access to flexible and part-time work is the thing they are looking for above everything. There is definitely something about how we are perhaps not very good at job matching in this country and making sure that, over the course of a career, adults are able to find the right next job for them in their careers.
There is a final group I would describe. These can all be interconnected and show up in multiple ways for any one individual. Workers of this age group consistently report in large numbers—it is about a third of people over 50—that they have experienced age discrimination when they are trying to look for work. It is directly about age. There is some really nice experimental evidence where people have age-blinded CVs and sent out the same CVs with some masking and blinding the chronological age of the person and some making that entirely apparent. Otherwise, skills, education and experience are all identical. Those age-blinded CVs get significantly more invitations for interview than the ones where the age is made apparent, and that effect is larger the older you become.
Given what we have been talking about, about the critical importance of this issue, you mentioned the group in the second half of that age bracket. The employment rate for people in their 60s is only 51%. The current Government have this broad ambition of an employment rate of 80% overall. There is a big gap there. I would strongly urge—it is an easy and impossible ask—that a comprehensive and cross-departmental strategy about this that recognises these different factors and groups and how they show up differently in the population is the sort of thing that we need to see.
In terms of paying for something like that, there is an argument to be made that if, in managing your fiscal costs of a state pension, as Jonathan was describing, you are ratcheting up the state pension age in line with average life expectancy—it is going to go up next year to 67—you recognise, perhaps, that not all the immediate fiscal return to the Exchequer should be ploughed back in to public finances more broadly. You could instead argue that some indicative proportion of that ought to be explicitly trying to mitigate the labour market challenges that people immediately affected by a state pension age increase experience.
It is things such as targeted and tailored careers guidance and employment support, and broad-based access to that sort of advice and information. As I said before, it is about occupational health and access to immediate proactive support for people with health conditions. It is also about access to training. Rates of training and lifelong learning for people over 50 have been in consistent decline for the last 10 to 15 years. Our offer for this group, in terms of skills and lifelong learning, seems to be woefully inadequate. Those are some of the main factors.
Dr Jonathan Cribb: If it is okay, I will start with a couple of financial issues and then pick up where Catherine left off. We do some things well in this country at keeping people in the labour market, in terms of how we are setting up policy, and we do some things badly. The reason that is important is that this time of life—the 50 to 70 group that Catherine identifies—is a point when people are more likely to respond to financial incentives to work than they are in the middle of working life. A 40 year-old man does not respond that much to financial incentives to work, compared with people closer to traditional retirement ages, for example.
What do we do well? We have a state pension system that does not, basically, disincentivise work very much. Many European countries have systems in which you hit a certain age and, if you keep on working, you do not get any more and just lose out, so the incentive to retire is high. We do not have that. That is something that we do well. What does this mean? It means that we have quite gradual declines in retirement throughout the late 50s and into the 60s, rather than all happening at state pension age. Only 10% of people, roughly, retire at state pension age. That is important, but it is not everything.
What do we do less well? We do public service pensions quite badly actually. My boss, Paul Johnson, wrote in the Times this week, highlighting that, if you have a public service pension that was accumulated in particular pre-2015, or sometimes earlier, depending on the exact nature of which scheme you are in and your employment history, if you do not retire or draw that pension at 60, you are worse off. For some professions, if you do not retire, you lose money by not taking the pension and, if you draw the pension, you cannot continue to work full-time in that occupation. That is the case in the Teachers’ Pension Scheme, for example. We have a set of issues there that incentivise, in particular, public sector workers still to retire at 60, well below when most people now are moving out of the workforce later into their 60s.
That is what we are doing well and what we are doing badly. Those are two areas. I have two very short things. One is on health, because people talk about it a lot nowadays. It is credible that the poor performance in population health has weighed down on the labour market recently and during the pandemic, but health is not the key reason that most people retire at the point that they do.
You can look at two quick stats on this. One is that, if you look at the decline in employment between 50 and 70 and the decline in health, you can match out how those two things are changing at the same time. A maximum of about 10% of the decline in employment can be explained by the decline in population health over that period.
Secondly, we are now at a point where men in their early 60s still have a lower employment rate than in the mid-1970s—about 10 percentage points lower—and yet are massively healthier than men were in the 1970s. What does that mean? There is, not for everybody but at the population level, a good deal of health capacity to work longer. The problem, as Catherine identified, is exactly identifying the kinds of people who do and do not have that health capacity.
Lord Davies of Brixton: I need to interject. I have immense respect for Paul Johnson, but it would take up too much of the committee’s time to explain what he misunderstood and simply got wrong in that article. I do not think we should take that as a serious contribution. Obviously, if you keep on working, you are better off. You might lose pension, but you are getting your earnings, so you are clearly better off if you keep working. What sort of incentive is it? There is less incentive, but there is an incentive to keep working. To suggest that there is not an incentive to keep working is very misleading. I wanted to make that clear, since you have raised the issue.
Dr Jonathan Cribb: I would be happy to have a further conversation, as I am sure Paul would. A key thing is that there is a cost to still working as well, and that is what else you can do with your time.
Lord Davies of Brixton: Yes, but you are still better off.
Q55 Baroness Wolf of Dulwich: My second question of the two interrelated questions is about caring responsibilities. That is also, to some extent, in practice and possibly for the foreseeable future, about differences between men and women, because the statistics are pretty clear that women do more of it at this point. It is about two, again, related questions. The first is about whether we make it hard or easy, or harder than it should be, for people who have caring responsibilities to change their working patterns and working lives in such a way that they can do more caring without stopping work. If you have heavy caring responsibilities, do we make it difficult or easy to come back into the workplace?
The second one is about the future, which is what, after all, we are very interested in here. With shrinking fertility rates, is there a real issue emerging about increasing numbers of elderly people who do not have close family relatives? Do we have any information on that? We know that an awful lot of the cost of care is currently borne by family. Is there anything to indicate that this will remain stable or, alternatively, that it will be a growing challenge in the future?
Catherine Foot: That is interesting. One can assume that there will be more people ageing in the future without adult children. There are, of course, also other dynamics at play, where there are much more complicated relationships, with increasing historic rates of divorce and remarriage. That relationship—whether it is your child or your stepchild, and blended families—is making the situation of who cares for who and who is responsible for who increasingly complicated to determine.
There is a neat issue if you literally do not have any children. It gets a little bit more complicated to determine, from the census and things, what these structures are within individual families and, therefore, how people would feel about taking on caring roles. I have not recently seen any hard projections about that, but it is certainly something I could go away and look at and see whether I can dig anything out to submit in writing to the committee, if you are interested.
Baroness Wolf of Dulwich: I would be, yes.
Catherine Foot: That broader question of how we help carers to also work is absolutely critical. The charity Carers UK estimates that about 600 people leave work a day in this country at the moment because they cannot combine working with their caring responsibilities.
Caring is not just one thing. It can be a lot of very different things. Your capacity to work is closely interrelated with the type of care that you are providing. It is very different to be providing regular, daily, morning and evening visits for somebody who you do not live with versus somebody who you live with, or care that is more episodic, such as urgent periods of intense support, for example trying to find somebody a care home place after a period in hospital where it is determined that they cannot return back to their own home, but then they are looked after in a care setting. It is very complicated.
We are doing some work with Professor Sarah Harper at Oxford, who you spoke to recently, to try to dig into exactly what different sorts of care contexts create what different sorts of employment difficulties for workers. As we were talking about before, there is certainly an issue with access to good-quality part-time work. There is a real differential in the types of job that are more typically available part-time. You are much more likely to find part-time work if you are looking for a job that pays £20,000 or less. It is really hard to find part-time work for jobs that pay a full-time equivalent of £60,000 or above. There is a big difference there. The flexible work charity Timewise did some work to demonstrate this. You sometimes see carers not just falling out of work but, even if they remain in work, working below their skill level, so working less productively than they could be.
There is a lot to unpack about what employers can be doing. We now have a Carer’s Leave Act that enables unpaid carer’s leave of five days. I would certainly argue that that ought to be a right to five days’ paid carer’s leave. One implication of our ageing society is that, just as we have got consistently, and reasonably generously, on top of the fact that being a parent of newborn children is a life stage that people deserve support through, we need to be more serious than we currently are about caring for elderly relatives and partners being a life stage that is contiguous with being in the working-age population that we need to support people better through. My employer, Phoenix, gives 10 days’ paid carer’s leave a year as one of its benefits, and some other employers have already got there, but the statutory right is very low.
Dr Jonathan Cribb: I have less to add in general on this. There are just three very quick things. I entirely agree that this friction or discrimination around part-time work, whatever the issues are there, needs to be better understood. It is a really key problem. To put it bluntly, if people are forced to make a “full-time or nothing” decision at these ages, I think we are going to see many people choosing nothing in terms of paid work, particularly if they have some private pension saving to rely on.
One of my quick things was that caring should be thought about broadly. There are issues of not just the older generation but more women in the labour force after they have had young children. There are the grandparental caring things as well. What does this mean? It means that there are a lot of potential demands on the time of people in this age group.
Lastly, some thought should be given to the fact that rising fractions of the population are immigrants and their parents, in general, will not be in the United Kingdom. Flexible work, in terms of hours per week, may not be a solution there, but there is another aspect where a higher immigrant population is going to change the trade-offs that people face here in their personal and work lives.
Q56 Lord Verjee: My question is around the pension system. We have talked a lot about that in both the public and the private sector. How can the pension system change to accommodate an ageing society? If we had a blue sky ahead of us, or a blank sheet of paper, do you have any ideas of how we could incentivise people to save more for an ageing society and work longer? Are there any crazy ideas out there? Can we look at other countries and what they have used to incentivise people to work longer and save more for an ageing society?
Dr Jonathan Cribb: One thing is that we are in a good place in that we have set up our pension system in a mixed sense, with a state pension that provides a foundation layer to people’s retirements and then relies on a private pension system facilitated by employers to provide income in addition to that. Having set up our pension system in that way, it is easier to deal with an ageing population than if we had been setting up our pension system like, for example, France, where there are no private pensions. Higher-paid people in France accumulate much higher state pensions and the burden there is much higher.
What does that mean? It means that, while we will continue to need a role for a good foundation layer of state pension, including in the future, where the work needs to be done in terms of generating good income in retirement has to be in the private pension system. We have significant tax incentives for private pensions. They are probably not targeted the way that is best, but we have the significant tax incentives. We auto‑enrol people. The state should be helping people with a middle income or a bit higher save more for retirement through automatic enrolment, rather than the quite low levels of contributions at the moment—not relying, for example, on a much higher state pension to provide additional pension adequacy.
I am not sure that I know of any countries that have done anything particularly radical and successful recently that I would go to. The basic structure of what we have is pretty good and robust. We need to be careful that the state pension does not get too expensive. What does that mean? It means not keeping the triple lock for ever. It means finding a good target level at which we can have the state pension, but we do not need to throw everything up in the air and start again. There is a lot to like.
Catherine Foot: I would absolutely agree with lots of that. There are all sorts of things that we could be working on with a blank sheet of paper, though. If you take the pension system in particular, I entirely agree that all the evidence suggests that, for future generations of retirees on a median income or above, people are consistently going to find themselves disappointed when they get to retirement. We are not reaching a level of adequacy that most people will expect. That is a huge and urgent lesson.
Automatic enrolment has been this fantastic success story for getting more people overall to be saving at all into a private pension to create this consistent mixed model you were describing, Jonathan. One big lesson of the last 10 years or so of that policy now being in place is that it is creating an awful lot of very small pension pots that are hard to find, hard to keep track of and do not add up to enough. There is a really serious issue about adequacy for people at median income and above.
My sense is that a cultural lack of awareness about that persists in this country. People look to their parents on final salary schemes. There are a quarter of people in the UK who work in the public sector on final salary schemes. That word “pension” for many people still means the promise of a guaranteed income for life: “I’ve got a pension. My employer’s quite good and I work. I’ve got a better job than my parents did and look at my parents. They’re fine, so surely I’ll be even more fine”. That is the level at which the thinking stops.
I am particularly concerned about what you might term the defined contribution pension non-natives. Younger generations saving into this new automatic enrolment environment will spend their working life as defined contribution pension natives. The evidence of their attitudes and understanding that we can gather so far suggests that they get it: they are going to get this pot that they are responsible for, their employer pays some into, they pay some into and they are going to need to then make decisions about. There are larger numbers in a slightly older generation who did not grow up in that environment and have this perhaps false model of their parents’ experiences that they are drawing on in their assumptions. Those DC non-natives, the young Gen X and old millennials, are perhaps a population I am really concerned about. I would love, if I had a blank sheet of paper, to find ways of alerting them to the reality of our new environment.
I am very much looking forward to pensions dashboards as a means at last to solve this crazy impossibility that you have to keep track of all your pensions and find anything. It is extraordinary how paper-based and telephone-based our system is at the moment, so I am very excited to see how that develops.
In pensions, the other enormous thing to tackle is that decumulation phase where we expect the impossible of people to transition from people who have been protected by default by automatic enrolment and invited to not worry about it, to suddenly receiving a pot of money that they need to make all the decisions about and that they become entirely responsible for the risk of outliving as a sum of money, or indeed not spending enough so that they end up having underspent over their retirement. There is a Nobel Prize-winning economist called William Sharpe who calls this decumulation question in a DC pension environment the nastiest, hardest problem in finance. This problem is all on individuals, so there are some big questions there.
On the working longer point, there is so much we could do. One example would be that we have this lovely model, this small thing, Now Teach, in this country. It is a beautiful end-to-end promise that this is a profession in society that actively wants workers towards the end of their careers and attracts and supports those workers to shift careers into that profession. We need Now Social Care. If you look at our industrial strategy, we need Now Advanced Manufacturing, Now Green Jobs and Now Creative and Cultural Industries. We need to send signals in our economy that we want people to continue to work and that they are wanted and have a place in our new economy as workers.
On the age discrimination point I mentioned earlier, I find it extraordinary that we have not seen any class action lawsuits about age discrimination in the workplace in this country yet. I would love to see a few of those. It is in the Equality Act. Age discrimination is illegal, but you do not really see it being taken to court.
Q57 Lord Agnew of Oulton: I want to explore this pension area. This may be my ignorance, but in the teaching profession we have this extraordinary situation where we are now having to pay 28% as an employer’s contribution, but we know jolly well that that money is not going to the benefit of that employee. We know that an employer contributing between 12% and 15% over the career of a teacher on a defined contribution gives a very good pension, plus obviously something from the employee. It is creating this tremendously perverse incentive in employment of particularly older teachers, because by then they are relatively senior and so the cost of employment of these people is well beyond the reality of what they are delivering.
To Lord Verjee’s point of a blue sky, should we not be hypothecating the amount which is going off to pay past misdemeanours in our calculation for people who are currently retired and that which is allocated on a defined basis for the person who is actually receiving that notional benefit every month? I feel that we are in a sort of Ponzi scheme at the moment, and this is the same in the Civil Service. Can you explain this to me?
Lord Davies of Brixton: Could I register a wish to debate these issues at another time? There is a lot to be said.
Lord Agnew of Oulton: Let us just hear a quick one.
The Chair: Yes, let us have a brief response before we go on.
Dr Jonathan Cribb: I think that most of what we were saying before was really about the funded private pension system—there is a little bit of DB left, but it is mostly defined contribution—that private sector workers have access to. Public service pensions are unfunded, as you say. They do not go into a pot. There are no investments. The contributions go back to the Treasury, and the Treasury pays out to the public service pensioners. We could, although it is probably beyond the scope of this meeting, talk about going to a completely different public service pension structure.
We have got to the point, though, at which the remuneration of public sector workers looks extremely strange, with very high contributions compared with even good pensions in the private sector, and has held down most public sector workers’ pay. Frankly, and most damagingly of all, you now have quite a few poor public sector workers not joining their pension scheme worth 30% of their pay because they cannot afford the 7%, 10% or whatever employee contributions they have to make to access it. This is most radically, I think, in the police, where the pension contributions they have to make are really very high. We have, frankly, got out of kilter there, but it is not easy to move policy here.
Catherine Foot: I agree that these pension promises last for a lifetime. Thinking through, in policy and political terms, how you react 30 or 40 years later when you realise the impact of a set of choices is very difficult and, I agree, politically extremely challenging.
Q58 Lord Blackwell: We have all been conditioned over the years to think about the pensions issue for an ageing society as a problem of whether the ageing population will have big enough pensions and enough spending power and bemoan the loss of DB schemes. The point I put to some of the previous witnesses is that, with the high number of people not working compared with the people working, the problem is not so much the spending power of the retired; it is the output level of those who are working. The output has to be shared among a bigger population and therefore, in a sense, having bigger spending power in the retired population does not help. At a macroeconomic level, it either makes the working population poorer or creates inflation.
You mentioned, Dr Cribb, that the triple lock probably has to be questioned at some point. Do we not want people, in a sense, to feel they need to work longer in order to accumulate enough savings and not to feel that they can retire early because they have enough money? That will just worsen the situation of too much spending power in the people who are not working.
Dr Jonathan Cribb: There are countries where you would worry about that a lot—fundamentally, places such as Greece, where they had very high pensions compared with the wages. You would worry that people have, in a sense, got this pension promise that was so big that they do not need to work. In general, I am instinctively sceptical of, “We want you to be poorer so you work more” arguments. I am not saying that is exactly the argument that you are making, but some people make that argument.
The way to think about this is that it is about sustainability, which is a bit of a buzzword. It is about making sustainable promises to generations about what they can expect to receive that are credible and are not promises that are going to bankrupt them. To be frank, most people are not retiring, if they are on the state pension alone, to a life of largesse. Many of them—most of them, indeed—are avoiding poverty, but they do not have huge amounts of spare cash. If people have decided to accumulate their own private pensions and that gives them a good lifestyle, that is fine.
The key here is to be setting the state pension at a level that is credible, is sustainable and provides this floor to people’s living standards. If you do all that, I do not think you are going to get many people about whom you can say, “You’re rich on the basis of state resources”. I do not think that will be something to worry about.
Lord Blackwell: To be clear, I am not suggesting that we want to make people poor. I am just suggesting that the answer to the problem is not making retired people collectively wealthier, because that does not solve the problem of needing more output from more people working longer.
Catherine Foot: Yes, I see what you mean. I wonder, 20 or 30 years from now, whether we will, depending on how successful we are in acting to respond to our ageing society, consider this particular period where we have quite a lot of wealth concentrated at older ages quite an unusual anomaly in our country’s recent history. It does not look, as we were talking about earlier, like future generations of retirees are going to be anything like as comfortable on average. That is not just a story, as you well appreciate, of our relative generosity in terms of pensions. It is also, critically, about the accumulation of housing wealth over their lifetimes.
Q59 Lord Lamont of Lerwick: Good afternoon. Could you elaborate on the so-called intergenerational aspect of an ageing society in respect to wealth transfer? What do you think is the economic significance of this? Are there issues that the Government need to address about this?
Dr Jonathan Cribb: I see that the key stylised fact, for want of a better word here, is that the generation born in the 1940s and in particular the 1950s really are the wealthiest generation as a whole to reach older age that we have ever seen. They have higher longevity and wealth, and a lot of that wealth is not being drawn down very quickly. I am not criticising anybody for not doing that, but that is the case. That is combined with slower economic growth.
Usually, strong economic growth means that every generation becomes richer after the next one. Even if there are wealth transfers from one generation to the next, economic growth means that, by the time they get to death or later life, that accumulated wealth does not seem so large because of the great success of economic growth for, say, people in their 30s or 40s and so forth.
We have economic growth that has created much more prosperity particularly for those generations that are earlier in older age or retirement at the moment. Lower economic growth is depressing the incomes, relative to the counterfactual, of working-age people. You will end up with the importance of transfers from, in particular, those born in the 1940s or the 1950s to their children or, potentially, their grandchildren. The rising importance is that combination of success in extra wealth and failure in terms of poor economic growth, which means that these things are more important for working-age people.
Lord Lamont of Lerwick: What do you think the Government should, if anything, do about it?
Dr Jonathan Cribb: The first thing is that this highlights the importance, frankly, of growth. Essentially, the lack of growth in aggregate creates new inequalities that people care about. Let us be blunt about this. More egalitarian people may be assumed not to care quite as much about growth, but those egalitarians need to worry about the lack of growth because of these intergenerational issues. So the first point—I do not mean to just sound like the Prime Minister—is that growth really is very important.
Then there is a reasonable range of disagreements about the extent to which this transfer of wealth should be taxed. If you are going to do it, in general, I and my colleagues at IFS would say, “Try to do it in a way that doesn’t create big loopholes and that is neutral across different types of assets”. That is why we have suggested changes to the inheritance tax treatment of DC pensions, for example. There is going to be a reasonable range of different opinions about the extent to which these kinds of transfers should be taxed.
Lord Lamont of Lerwick: You referred to some people being egalitarians and some being non-egalitarians. Classifying myself as the latter, I am less interested in ratios.
Lord Burns: We always thought you were the former, Norman.
Lord Lamont of Lerwick: I am less interested in ratios and more interested in avoiding levels of poverty. When you were answering Lord Verjee, you referred to the foundation of the state pension scheme and the development of occupational schemes on top of that. Can you say something about what you think the relative position of an average or median pensioner household is to average or median earnings of the population generally? On the one hand, you have people such as Fraser Nelson who have produced a wealth of statistical evidence that actually the gap is the narrowest it has ever been. On the other hand, we had evidence at an early stage from Sarah Harper, who argued that something like over 20% of retirement pensioners were dependent on that pension and that pension alone, which does not seem at all consistent with the Fraser Nelson analysis.
Dr Jonathan Cribb: The average pensioner, once you account for housing costs—very low for pensioners and considerable for most working-age people—has an average income that is essentially the same as the income of people below state pension age.
Lord Lamont of Lerwick: Yes, but you surely cannot just create some theory by discounting housing costs.
Dr Jonathan Cribb: The point is that, on average, working-age people have higher household incomes than pensioners, so pensioners are poorer, but pensioners do not face, in general, many housing costs. If you account for the fact that working-age people have higher incomes but also higher housing costs, that brings down how well off working-age people are to look fairly similar now, either side of pension age. That has been true since around the early 2010s, but it had not been true before.
This is the average or, in that particular case, the median. There will always be people much more reliant on the state. I am not surprised by the fractions of people. I do not know the exact numbers, but they do not surprise me. The thing to remember here is that there are lower pensioner poverty rates than poverty rates for children in particular. That is partly because of the state pension system we have that creates this foundation for retirement income.
Lord Lamont of Lerwick: Catherine, maybe you would just concentrate on the first question rather than the second.
Catherine Foot: Yes, certainly. I would also like to reflect that, in terms of what the Government should do about it, I was speaking not long ago to a group of young activists who were very exercised about the relative wealth of different generations and very concerned about intergenerational inequalities in wealth. To our discussion just now about the range of economic circumstances of our current retired population, I found myself encouraging them incredibly strongly to make sure that they were not saying “old” when they meant “rich” and that they were not equating old with rich. When they were talking about where the money is and where they wanted that money to be redistributed, they were falling into a trap of an assumption that everyone who is old at the moment is relatively rich.
To Jonathan’s point and to your question about housing costs, housing is a huge part of that story. You are much more likely to be a pensioner currently in poverty if you have never owned your home. We are moving now into a world where it is very likely that the proportion of people at older ages who are still renting in the private market through their retirement might triple over the next 20 years, which has huge implications for future generations’ retirement security. When, in this group, they were discussing the Government’s role in wealth transfer and taxing wealth, I was keen to stress that I felt I spotted them saying “old” when what they meant was “rich”.
Q60 Lord Petitgas: Can I ask a follow-up question on this housing issue? It is quite interesting. You are saying that pensions are sort of okay, but, fundamentally, I think that most people would say that their pension pots are probably going to be falling short of expectation. On the other hand, housing is the big pot of gold that has been squirreled away. Arguably, that has actually been very hard. There were times when mortgages were at 18%, 19% or 20%. Nobody is reinvestigating that time.
Be that as it may, it tells me that the only asset that has appreciated is where people have invested in their houses. The question is why pensions have not kept up with this. I would argue that the pension system is not very efficient. Clearly, people have not been investing in the right things, whether it is that the system is not good enough, the asset managers are not good enough or people are being freed to do what they are not really capable of doing. It is pretty clear that the pensions in the state sector, and certainly the private sector, have not kept up with housing, but in fact they should have.
You said that there were no precedents elsewhere. I can point to Australia and Canada, where the system certainly would have kept up with housing. I do not think that we have a particular housing bubble in the UK any more, by the way. We may have had. There is an issue of the asset base and the wealth creation in the pension and the accumulation of wealth over time.
Catherine Foot: I have a lot of sympathy for that argument. I am sure that is true. It is also true, though, that we have seen a relative retrenchment from employers in their generosity to workers in terms of their pensions over this period, and that is significant also.
Dr Jonathan Cribb: Most private sector defined contribution pensions are invested in a mix of equities and bonds. I am not criticising that. At least over the long run, equities generally provide a fairly decent return. Frankly, the very high housing prices that we face are in response to not always beneficial policies. We have extremely poor housing supply elasticities that have pushed up these housing prices. My point is that it is definitely not an unambiguous benefit that the return on housing has been so high.
Q61 Lord Agnew of Oulton: I am interested in the relationship between productivity and different ages of people in the workforce, particularly older people. There used to be the sense that older people were less productive, but I do not feel that is the case in more of a white-collar economy, as we are, and services-based as well. Can you tell us what you both think about that and what more we could do to increase the productivity of older people?
Catherine Foot: People have looked. There was a systematic review not long ago of the evidence of the relative productivity of workers at different ages that found no consistent difference in productivity between workers in their 50s and 60s and workers who are younger. There is some other work that the OECD did a little while ago that found a slight increase in productivity at the level of the firm for firms that had a mix of ages in their teams. People have posited that there is some productivity benefit being accrued by firms that retain a range of ages in their workforce, perhaps bringing different sorts of knowledge, expertise and abilities to the work of that firm. There are myths that persist among some employers, I am sure, but there is no evidence that older workers are relatively less productive.
Lord Agnew of Oulton: So why is there the discrimination that you talked about earlier?
Catherine Foot: It is very interesting. There are lots of things that people report going on with age discrimination. There are false assumptions that the older you get, the less interested you are in learning something new. I think personally, from some of the evidence I have read, that there is something very interesting going on about hiring managers finding an older worker, who has perhaps had a different career trajectory from them, in some way a more challenging prospect than, essentially, seeing themselves three or four years younger coming to them for a job in their team.
The dynamics of a multigenerational team are different and, I think, sometimes put hiring managers off. There is something about career breaks and career trajectories. We know that you are much less likely to get a job if you have breaks in your career and, particularly for women, you are much more likely to accrue more of those breaks over the course of a longer working life. There are a lot of different things going on in age discrimination.
There are, of course, things we can do to improve the productivity of workers of this age. To our earlier conversation about part-time and flexible work, we have to, so urgently, move away from this platonic ideal of a worker that is a full-time person with no caring responsibilities, outside life or other things that they want to do with their time. That gets you into the situation where, for particularly higher-skilled roles, it is all or nothing. It is full-time or nothing for so many roles. You could be extracting productive capacity out of more of our currently economically inactive population in their 50s and 60s if we increase access to good quality part-time and flexible work. That is one thing.
I touched on job matching before. There is something there too for a population of people who no longer want to do the job they used to do, quite fancy doing something else and consider themselves still healthy, productive and able. They want to have a career for the next 15, 20 or 25 years, but just want to do something different. There is a dearth of support for people to make that change. How we are thinking about reforming jobs and careers advice to make this transitional life phase and people’s position in the labour market and the economy something that they can navigate for themselves more easily is another really important one.
Dr Jonathan Cribb: If it is okay, I would like to add that I covered some of this in the written submission to the committee. I will not say everything there, but there will be a little bit more detail in there for anyone who is interested. There are a couple of things. One is that it is quite hard sometimes to extract individual productivity of different people, but, for example, there are studies that show that, in roles where not making mistakes is important, older workers generally make fewer serious mistakes that can be damaging to the business. That is a form of productivity for them.
None the less, it is true that people’s pay generally declines. Even hourly pay generally declines in people’s 50s. That can actually be a result of people’s changing preferences about the kind of work they do and what they find important.
The thing that is a bit of a challenge is about the geography of where people are and the labour markets that they have access to. Our cities, in particular London and its environs, are deep, relatively competitive labour markets in which people, if they lose a job or they really lose it with their boss, have other opportunities open to them. Cities are also places where younger people are much more likely to live. Rural areas, places where people have perfectly reasonably chosen to set down roots and spend their life, do not necessarily have those deep labour markets open to them. The point there is just that there are reasons. It is not necessarily only about discrimination or people’s skills, but the employers that they have available to them because of the places where people live.
Lord Petitgas: I have a quick follow-up. I was reflecting on this. Would it make sense to have some form of quotas or some way of bending the light? For example, I remember in my career we deliberately were trying to get more women and minorities into the business. There is also a reason for that, which is that, when you have a critical mass of a particular cohort, it is much more productive. It is much easier for these people to integrate and there is less criticism and fewer issues.
In the same way as companies are forced to publish certain statistics, would it make sense to have them publish statistics about people who are above 60 or whatever? That would probably transform things because there is a view, as you said, that, beyond 60, you should not be around in business. Certainly on Wall Street it is rare. I wonder whether there is a way there to bend the light a bit.
Catherine Foot: Yes, that is really interesting. Campaigners in this space talk about and advocate for transparency of age data. You take the Equality Act and look at all the different protected characteristics, and age is one of those. You say to firms, “Why are you only publishing data on some of these characteristics? They are all protected characteristics under the Equality Act. Let’s have a look at how your workforce breaks down against all of these dimensions, and age is one of them”.
Q62 Lord Petitgas: We have skirted around a lot of this already, but are the Government taking the correct approach or are there other approaches with regard to the benefit system, broadly defined, to mitigate the impact of an ageing society? I was thinking about this in three components. One is on fertility. Maybe that is not exactly your topic. The second one is on health, which is end of life. The third one is on the dependency rate.
We have talked a lot about dependency rate, including on some of the negative incentives, which would be, “Guess what? You have to work until a certain age before you can actually get the money”. I see positive incentives, such as training or publishing quotas to encourage people to carry on working and get them to work.
On dependency rate, the one thing we have not spoken about in terms of welfare, or other benefits, is the other end of the equation, which is that so many people actually are perfectly of working age and not working. That is the other part of the ratio, which we have not really addressed and which potentially is, I would argue, more problematic. They should really be working and they are not, so that is a huge loss in terms of the contribution. I hope that is clear enough and not too long.
Catherine Foot: There are lots of bits there.
Lord Petitgas: Yes, deliberately. You do not have to answer everything. You can skip fertility if you would like.
Catherine Foot: Yes, I am afraid I will have to. On some of your other points, on the old age dependency ratio and this issue of the proportion of people working and not working, we have talked about some of that. One thing that has not perhaps come up in terms of our benefit system for working-age people specifically is that the age group of working-age adults who have seen the fastest increase in rate of poverty over the last period is people aged between 60 and 64.
That pre‑retirement poverty is a new and growing phenomenon and relates to how hard it is to get back into work if you have fallen out as you are around that age. It also, I am sure, relates to the relative generosity of these different parts of the benefit system—working-age benefits being significantly lower than our state pension. You have an environment where poverty rates are increasing for people in their early 60s and you are much more likely to be in poverty in your early 60s if you are not working. The poverty rate is about 25% for people in that age group, and it is going up significantly.
It definitely says to me that the increasing age of the state pension as a solution to some of this stuff is solving a problem over here about the fiscal cost of the state pension to the Exchequer, but it is just pushing a new problem on to people, which is an inability to remain earning all the way up to that point. We have talked about some of that. I am not sure quite what you meant. You mentioned end of life and healthcare.
Lord Petitgas: I was thinking about the welfare system. There are dependency ratios, the old and the young, and then the healthcare aspects. Are we investing in the right places? Do we have the right infrastructure? Is it too expensive? As you said, the end of life is a lot more expensive. If you think about the curve of the cost of people, it is like this and then it goes like this for the last two years. How do we think about this?
Catherine Foot: In healthcare, the goal has to be what is called the compression of morbidity—the maintenance of the longest possible years of healthy and productive life and the fewest possible years of ill health and dependency that is inevitably more costly. To Jonathan’s initial point, when you were comparing our success with pulling pensions levers versus our success with pulling health system levers, we have been terrible at being able to create and grow a truly preventive and public health-oriented health system and economy that does everything it can to maintain good health for as long as possible. Without that, the acute health sector will continue to suck the money out of the system and need that money, so that has to be the priority.
Lord Petitgas: The way I am thinking about it is that you have a pension that is probably too short anyway, and then nobody has provided for the fact that there are more people who get more of a chance to live longer and therefore be ill later and have much higher morbidity. We have not budgeted for this and nobody is actually saving to pay for this, so ultimately it is the collective.
Catherine Foot: Yes.
The Chair: Jonathan, do you want to come in?
Dr Jonathan Cribb: Yes, very briefly. I have a couple of things. You may want to get evidence on this in particular, if you have not already, but my understanding is that pro-natal incentives may do a little bit where they are successful, but it is unusual for them to be transformative.
The Chair: Yes, we have had evidence on that.
Dr Jonathan Cribb: I note, however, that we have this thing called the two-child limit, which is a quite explicit disincentive to have children for a certain section of the population, relative to the situation where we did not have that limit.
The only other thing here that might be worth pointing out is pension credit. You used to be able to get pension credit when the younger member of a couple reached 60. That is now when the older member of a couple reaches 66 and will go to when the older member of the couple reaches 67. What does that do? It provides much less support for the lifetime poor, people without other assets in their early 60s. It also increases their incentive to work, however. There are almost always two sides to these coins.
In the welfare system, pension credit will ultimately get killed by the new state pension. Over time, there is this means-tested system that sits with the state pension system, but that bit of the state is going to get slowly brought down, because more and more people are going to get this new state pension. If you get that, you do not get pension credit. This is where we want to see the whole system working together. Even if one bit, the pension credit bit, is going to be reducing in magnitude, you still have more spending on pensions and pensioner benefits because of the demographics and the triple lock.
Q63 Lord Burns: Can I pursue this issue about the cost of life and healthcare at the end of life? I still do not quite have a picture of the balance of where this is going. We have learned that people have more healthy life years now, as with longevity. The question is whether they also have more unhealthy years at the end of their life than they previously did. Not only is there a cost in terms of there being more elderly people, but is there a greater health cost in terms of looking after people because they have a longer period when they are unhealthy?
It is in the nature of what, very often, are the things that bring their life to a close. Some of those things can last quite a long time before people die. I would guess that there is more of that now than there used to be and that therefore not only do we have more people who are in that age bracket but the question is whether their costs, in the sense of end‑of-life care, are higher than they used to be per person.
Catherine Foot: Yes, absolutely. Costs are increasing at the end of life significantly due to the cost of technology and our ability to spend money on expensive technology in that phase of life. Not all morbidity is equally expensive. Some illnesses are relatively cheap. The process of the last 18 months for many people, as we have been so successful with reducing rates of cardiac failure, stroke and many cancers, when you are not dying quite so quickly and suddenly, is that the opportunity for technological intervention over many months becomes more possible. Technological costs are a big part of what is driving increased overall healthcare costs, and end of life is a big part of that.
Dr Jonathan Cribb: There is improved cardiovascular health. Fewer people die from heart attacks. People, particularly men, often died of them quite young. It was quite cheap. Everyone dies ultimately and now in more expensive ways, but we should celebrate the fact that people are not having as many heart attacks in their 50s.
Lord Burns: I am not saying that it is a bad thing at all. Does it mean that there is an additional cost involved in that?
Dr Jonathan Cribb: Absolutely, yes.
Catherine Foot: Yes, absolutely, and the future projections are hard to model. The OBR, in its latest outlook, has opted for a model of what I think it calls the partial compression of morbidity, so we get a bit better over time at making that unhealthy period towards the end of life a bit shorter, but not a lot better.[1] It is quite sceptical of an ability over the next period to get much better faster at reducing that period of ill health towards the end of life. Others disagree, and there are many ways you can potentially model it.
Q64 Lord Blackwell: I want to come back briefly to the state pension. I take your point that there are clearly some people in their 50s or 60s who are unemployed and who cannot get another job. If, on the whole, we want people to work longer and people have to work longer to sustain the system, is there any argument for saying we should have more of a gearing in the state pension the longer you defer taking it—in other words, an incentive to keep working because, if you defer your retirement for three or five years, you would get a much higher pension? Has anyone looked at that?
Catherine Foot: It is a suggestion that comes around. The inequalities implications, of course, are that, if you are then able to take a persistently higher rate of annual state pension and were able to extend your working life, you are probably also more likely to live longer. You are taking a lot more out of that state pension as a result. The people with the capacity to respond to that incentive to stay and work longer are likely to be the healthier people who will continue to draw that higher income for longer. Certainly in previous years I have seen that argument made and a concern raised that that is expensive.
Lord Burns: It is already quite highly geared.
Dr Jonathan Cribb: You can defer your state pension in return for an actuarial increase, though it is not as generous as it used to be. Some people think that you should be able to get it earlier than the state pension age for an actuarial reduction. That would benefit, at least immediately, a set of people who struggle to get through to higher state pension age.
For what it is worth, I do not personally think that is a right way to go, partly because, with our mix of private and public state pension, if you allow people to take their state pension three, four or five years earlier, the actuarial reduction is quite significant. Is it credible, for particularly poorer people in their 90s, say, or late 80s, that we are still going to be paying them lower state pensions as a result of claiming it before state pension age?
Lord Blackwell: I certainly would not agree with allowing people to take it earlier. If currently deferring it is based on an actuarial calculation, as a rational individual, you would say, “It doesn’t make any difference to me. I might as well take it earlier because I don’t know how long I’m going to live and that might be a better solution”. I was postulating a more than actuarial increase in order to provide a significant incentive. Yes, it might increase inequality, but people do not necessarily spend the extra income if they have it. There has not been an argument for that.
Catherine Foot: Yes, it is interesting. I will ponder it. It is an interesting suggestion.
Q65 Lord Razzall: We realise that the United Kingdom is not alone among countries having this problem. We have learned quite a lot about Japan, Italy and Europe and sub-Saharan African countries that have slightly different issues. Is there any practice that anyone else is following that you would recommend that Britain should look to adopt, or are we all muddling through?
Catherine Foot: Overall, in lots of ways we are all muddling through and waking up rather too late to these issues. Interestingly, it feels like a particularly trendy moment to have this inquiry. There is a lot going on internationally in this space just at the moment. You will probably have seen that the McKinsey institute published its big analysis of dependency and depopulation in different countries, potential demographic trajectories and what that might mean for their economic growth. The World Economic Forum has just come out with something. There has been a span of, “What are countries doing?”. I would urge you to review some of those examples. The IMF too, just the other day, was talking about this very issue.
I am not quite sure why ageing societies are having a moment just now, but they seem to be. You are right. Japan had its big governmental society of the future of the 100-year life quite some time ago now and had an ageing population issue that was more urgent and significant than ours. There are lots of countries with a higher employment rate for people in their 60s. The opportunity to learn from countries that are getting employment for people in their 60s better is replete.
Lord Razzall: Is there an obvious country?
Catherine Foot: For the equivalent age group, we are at a 60%-odd employment rate. Sweden is about 78% for people aged between 55 and 64, so it is slightly different. New Zealand is the same. Germany is only a tiny bit less, at about 75% for people in that age group. To some of the points we were making earlier, there are all sorts of reasons why incentives, structures and support are different, but there are a lot of places to learn from if we want to encourage longer working lives.
Dr Jonathan Cribb: We are not the worst in this. We can try to learn from how other countries are putting in place systems to allow policies to change. Some people like, for example, the Danish system, where pension ages are tied explicitly to life expectancy. For what it is worth, I am a little bit sceptical that, given revisions, life expectancy is exactly the right way to go.
We have these independent reviews of the state pension age. When should they be done? What is the role of them? It was probably a bad idea that the last one happened towards the end of a Parliament. That is the kind of thing that should happen earlier in a Parliament if you are going to make it easier to make policy change.
Catherine Foot: It was towards the end of a pandemic as well.
Dr Jonathan Cribb: Yes, that certainly did not help. There are some structural things there. The other thing to say is that I do not know the extent to which the British Government do this, but I and my colleagues at the IFS consistently meet with policymakers from other countries looking to learn from the experience of the United Kingdom. I have met with people from Singapore and the House of Commons committee or the parliamentary committee—I am not sure of the Swedish name—in Sweden. They come to learn from us about what we do.
There are countries that are further along this demographic line than us—Japan and Italy, for example. I would hope that our men and women in Rome and Tokyo are meeting to learn from institutions in those countries further along this demographic transition that we can learn from. Sitting here in London in the UK and really understanding everything that is going on in Japan, Italy and other countries is going to be harder than it is for people who have expertise there.
Lord Razzall: Are you talking about the Foreign Office?
Dr Jonathan Cribb: Yes, basically.
Lord Razzall: Have you any evidence that that is happening?
Dr Jonathan Cribb: I do not know either way. I really hope it is, but I do not know.
Catherine Foot: On these questions of pensions and financial security in terms of international comparisons, I would argue that probably, on balance, we come out pretty well if you are measuring our pension system according to how fiscally sustainable it is for the state, relatively. Overall, our replacement rate from automatic enrolment and the state pension is well below the EU 27 and OECD average. We do less well on adequacy. We do pretty well on fiscal sustainability relatively, but not so well on people’s own financial security for their future retirements.
The Chair: We are definitely going to do a session, or maybe two, on international comparisons, so that is very helpful. Thank you so much for your time. I particularly enjoyed the committee being referred to as trendy, which is always welcome for a House of Lords committee. We really appreciate your time and you have given us a lot of food for thought, so thank you very much. With that, I can declare the meeting now concluded.
