‘Bonus Years’ – FT letter about longer working lives

by Dr. Ros Altmann

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Sir

Martin Weale (April 14) correctly highlights the inadequacy of UK savings, but his analysis appears incomplete. Work-leisure and consumption-savings choices are not separate macroeconomic decisions – they are linked. Furthermore, Government has not ignored the consumption-saving trade-off. Means-testing and regulation have encouraged maximising consumption, and discouraged saving. Naturally, such policies boosted near-term growth, but left individuals facing future shortages of both savings and leisure. Asymmetrical financial regulation facilitated banks lending individuals hundreds of thousands of pounds with few questions asked, but demanded ‘full-fact-find’ questionnaires to sell them a pension. Hardly a surprise, then, that savings collapsed!

Mr. Weale’s suggested solutions ignore demographic reality. The costs of supporting a burgeoning ageing population cannot be passed onto children who were never born, millions of older voters will not tolerate sharply reduced living standards, and most people will never save enough to provide what we currently demand of pensions.

An alternative solution involves radically rethinking ‘retirement’ (work-leisure) and ‘pensions’ (consumption-saving). Policy-makers can develop a whole new phase of life – perhaps called ‘bonus years’. Rather than soldiering on full-time or stopping altogether, most people in their 60’s and 70’s would enjoy part-time working, with more money to spend during their extra leisure. Employers have provided flexible working for young mothers in recent decades, and must now do so for older workers. Then private pensions (which are just a special form of long-term saving) need only supplement earnings, not fully replace them.

This solution requires extending worker protection beyond 65 and removing policy disincentives discouraging private pensions. Individuals could choose their combination of working, leisure, consumption and saving, with public sector finances boosted by longer working lives. Saving more is not the answer – a broader approach is essential.

Yours faithfully

Dr. Ros Altmann
London School of Economics