Part-time work is essential in later life

by Dr. Ros Altmann

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What are the new Government’s plans for addressing our pensions crisis?

Secretary of State for Work and Pensions, Iain Duncan-Smith, says we must reform pensions and ‘reinvigorate retirement’. He wants to increase the value of the state pension – that’s good – but, as people are living so much longer, he says this is only affordable if paid from a later age.

Under current plans, men’s pension age will rise to 66 in 2026. The Government proposes bringing it forward to 2016 instead, ten years earlier, so all men now in their 50’s will have to wait an extra year before starting their state pension. They have little time to plan for this.

Women’s pension age will also increase, from 60 at the moment, to 65 or even 66 by 2020.

And once pension age reaches 66, it will keep rising perhaps to 70 in future.

The later pension age offsets the cost of improving the state pension more quickly than planned. The Government promises a ‘triple guarantee’ for 2011 that the Basic State Pension will increase in line with prices, earnings or 2.5%, whichever is highest.

Will these changes sort out our pensions crisis? Well, they are a start, but not nearly enough – and they may not work. We need much more radical thinking.

The UK state pension is the lowest in the developed world – a full Basic State Pension is just £97-65 a week. Nobody can live on that. Increasing it by small amounts each year won’t help much. For example, even if it rises by 3% a year, in 2016 it will only be about £116 – still not enough to live on.

In any case, offering higher state pensions in exchange for later pension ages will not help if people have no work. Many older people cannot find jobs and retire before age 65. All over 60’s, with little other income or assets, can claim £132-60 a week Pension Credit – which pays much more than the £97-65 state pension! So, if workers are merely forced onto benefits, while they wait another year for the state pension, the policy will fail. Surely we must reform the labour market before increasing pension ages.

Many 65-year-olds want to keep working and without much private pension, they need to. But ageism in the workplace is rife and, although the Government plans to make it illegal to sack someone because they are 65, it will take time to change employer attitudes.

And, of course, some older workers cannot keep working – they are not well enough or their jobs are too physically demanding. What will they do if they do not qualify for means-tested benefits? Their retirements will be poorer if they have to wait longer for the state pension.

In fact, the Government’s proposed reforms do not sound like ‘reinvigorating retirement’ to me. What we really need is to redefine retirement. Retirement should become a process, not an event, gradually cutting down, not suddenly stopping work altogether.

For those who want or need to work longer, working part-time and perhaps retraining could offer a good lifestyle. Two or three days a week work, four or five days free is better than retiring completely and spending 20 or 30 years with very little money.

This could benefit the whole economy, bring in more tax, encourage more spending and utilise the talents of older people who still have so much to contribute. Most people are not ‘old’ at 60 or 65 nowadays. People are living much longer, healthier lives and work is generally less physically demanding – that is great news – but retirement attitudes have not kept pace. There is a whole phase of life of part-time work – ‘bonus years’ – in your 60’s and 70’s up for grabs.

With all these pension proposals, what about public sector pensions, which the Government says are unfair and unaffordable? A Review is underway, but is only considering changes for the future. So most public sector workers, could still start receiving taxpayer-guaranteed public sector pensions from age 60, even as state pension age rises to 68 or 70 for everyone else. Will future taxpayers be willing to shoulder these costs when their own pensions are much less generous and start much later?

That is one reason why the Government is stressing the importance of more people building up savings for their future. It is reviewing plans to automatically enrol workers into pension schemes, forcing employers to contribute. Should this apply to all firms or will smaller employers be exempt? Will it exclude some age or income groups? Should we have a national pension scheme or use private pension providers? We will know more soon.

However, just saving more will not provide enough income for most people. Longer working lives are inevitable, but let’s plan for this properly. Part-time work for older people really could reinvigorate retirement.