Social Democracy is dead but not for the Golden Generation…

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Don`t let me hear you say that life is taking you nowhere…Golden Years

I recently spent the day at a surprise birthday party held in honour of my partners ninety- year old Aunt. Travelling to the venue we listened to the depressing news concerning UK housing. It was reported that millions of people are struggling to cover their rents/mortgages, an estimated one million reliant on short term loans each month. This issue weighed heavily on my mind during a discussion at the party with a retired Head-teacher who said to me:

“I belong to the golden generation we had it all, we missed the war but drew all of the massive benefits from the Keynesian/Beveridge post war settlement. Meaning a grant aided education culminating in guaranteed employment post graduation. When I was a young teacher there were job adverts everywhere, pinned on the staffroom notice board pleading with you to leave your current job and go to another. I was of course able to take up my first post without debt, the very thought of having a debt was anathema to my generation. Housing was available with excellent local authority stock to choose and if you didn’t want to go into a council house then mortgage`s were an option and easily obtained because of your professional standing. My generation experienced the liberalisation of the 1960s, the end of deference, the freeing up of society a huge social and cultural shift. We had it all and now in retirement we have full pensions, live in lovely homes that we own outright, we are indeed the golden generation…” Read more of this post

How to ruin the Party

Daniel Mann

Image © Don Shall

It’s another slightly grey Monday here, and things seem as they always are. The city wakes up to a new day and a new week. As ever, Labour has control over the City Council, and down in Westminster, the ConDems are as muddling and incompetent as ever. To a certain extent, I think we in the Labour Party still don’t entirely understand why we’re in opposition, at least not from an internal perspective. But I’ll get to that in just a minute. First, let me introduce myself. I’m Dan, 21, BA in International Relations and currently an MSc student in Social Change at a certain North West redbrick university that’s a part of the Russell Group. It all sounds straightforward, right?

No, it isn’t. You see, I’m American by birth, but British by choice. I grew up in New York, but this is the second occasion that I’ve lived here in the UK. I wasn’t here for the 2010 election but, when I was living in London soon afterwards, I witnessed the numbness that we as a Party found ourselves in, having joined in mid-June of that year. But I digress. When I moved back ‘across the pond’, several months ago, I did the natural thing and plunged headfirst into local Party activities here, and I haven’t looked back. One such activity has been my involvement with my local Constituency Labour Party (CLP).

Quite recently, the CLP had its Annual General Meeting (AGM), which was, as ever, held in our Town Hall, an appealing Gothic edifice overlooking the city. As was expected, a great deal of members showed up, including quite a few whom I’d never seen at CLP meetings previous, all but one of which I’ve attended.

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There is no easy way to extend working lives

The government estimates that abolishing the default retirement age (DRA) will produce only 6,000 additional workers aged 65 or over in 2011. At the end of 2010, 870,000 people aged 65 or over were employed in the UK (2 in 3 of which work part-time). This number has risen by more than 50% in the past ten years (despite the introduction of the DRA in 2006); the 2011 rise attributed to the DRA represents an increase of less than 0.7%. The DRA – the age at which employers are legally permitted to ‘retire’ their staff – had to be reformed, because of mounting legal pressure on the ground of discrimination, but also to facilitate the increasing state pension age (SPA). But the government should be under no illusions that abolishing the DRA, or indeed the SPA, will lead to significantly more people staying in work for longer.

The UK’s average retirement age fell steadily throughout the postwar era until the mid-1990s, when it began to rise, currently estimated at around to 64.5 for men (which is below male SPA) and 62.4 for women (which is above female SPA). Given the difficulty of pinpointing labour market withdrawals, however, this account is not undisputed. Sepideh Arkani and Orla Gough, for example, argue that average retirement age rose sharply in the early-1990s, but has since fallen back slightly. At the macro-level, the long fall has been explained with reference to two major factors. First, the pull: the growth of generous and guaranteed defined benefit (DB) occupational schemes (‘final salary’ schemes), particularly in the public sector, meant many people were able to retire early without adverse financial consequences. And second, the push: economic change, chiefly the decline of manufacturing, increasingly led to de facto early retirement for workers made redundant in later life.

At the micro-level, however, the picture becomes far muddier. The main reason individuals cite for early retirement is ill-health. Job quality is also a major factor for many people. It is clear that financial incentives play a part. It seems that unless ill-health and labour market conditions intervene, lower-skilled workers with less generous pensions coverage will work for longer due to financial compulsion. However, it is not the case that more affluent workers retire early. Morten Blekesaune et al found that employees with high professional standing were likely to work for longer, perhaps due to the status and satisfaction derived from their work. As such, a number of current socio-economic trends are likely to impact on retirement decisions. The decline of DB pensions in favour of defined contribution (or ‘money purchase’) schemes alter the financial incentive structure regarding retirement, but also tend to much less generous. An ageing society has also created a large growth in care needs among the ‘oldest old’: caring responsibilities greatly problematise individuals’ capacity to work in later life.

It is clear that neither the SPA nor the DRA has a determining impact on retirement. If the government is to succeed in extending working lives and increasing SPA further without creating inequitable outcomes, it needs to place more emphasis on preventative healthcare, job quality, support for people with care responsibilities, and the creation of transferable skills among the older workforce. Enabling ‘gradual retirement’ may be the key: as the DRA is abolished, there needs to be more encouragement for employers to offer downshifting options for their staff. Furthermore, people should be able to draw down their pension entitlements in more flexible ways. While this option is available in many final salary schemes – and John Hutton recommends it is further entrenched within public sector pensions – it remains wholly absent within the provision of state pensions.

This post was originally published on the ILC-UK blog

Royal Mail privatisation: public sector pensions claim another victim

The coalition government announced today that Royal Mail is going to be privatised. The economic argument is of course no stronger than it has been every other time the sale of Royal Mail has been touted, but in an age of austerity, it is no surprise that the government wants to get this loss-making enterprise off the balance-sheet.

Royal Mail has of course been run like a business for a long time now – which is why we can even talk about its profitability. Most public services would make a loss in the private sector – that is why they are public services, to ensure public goods are delivered irrespective of market value. The fact that we pay for Royal Mail services doesn’t necessarily mean that it is a state-owned business; it could easily be viewed as a form of co-production.

The argument goes that the growth of email and social networking fatally undermines demand for Royal Mail. That is right, at least to some extent. But it doesn’t necessarily mean that the private sector would be able to cope more effectively with falling demand. In fact it may demonstrate that Royal Mail’s failings are due to exogenous factors rather than public sector inefficiencies. If the private sector is to return the Royal Mail to profitability, it will surely do so by ceasing the most costly services – typically used by people who have least access to the internet anyway. It is not hard to imagine already-strained local authority and voluntary sector organisations stepping into the breach to ensure that the most vulnerable members of society in this regard (including older people in remote areas) receive some form of mail service even if they are ignored or priced out by a privatised Royal Mail.

So, the argument on profitability is not convincing, and privatisation could lead to worse outcomes for many people. What is really behind the government’s move? The devil lies in the detail: the Royal Mail’s enormous pension scheme deficit. Figures released this year suggest that it now stands at over £10bn. This means its liabilities to pay its members’ final salary-related pension benefits far outweigh the value of the assets in the organisation’s pension fund. This has been perhaps the main reason private sector firms have been loathe to gamble on Royal Mail. For all the talk of digitalised mail, Royal Mail – which provides a vital public service for many people – is in financial difficulty precisely because of the way its pension fund has been organised and managed. Independent pensions consultant John Ralfe told the Telegraph in 2009 that the Royal Mail pension fund had been over-exposed to equity losses.

The structural problem in the pension fund, of course, is that it is paying retired former employees for far longer than it expected to when they commenced employment with Royal Mail. We are all living longer and both public and private sector pension schemes – not to mention state pensions – face long-term funding crises. The government has promised to back Royal Mail’s historic pension liabilities but does not want to risk taking on a growing deficit in the future. The debate on whether public sector pensions are legitimate or affordable could rage on and on. It just seems very strange that a public service could be sliced up and sold off for this reason. It is hard to see that privatisation is an economic answer to the pension problem. It is, however, a political answer. It means that a private company could massively reduce the generosity of Royal Mail’s pensions at a greater distance from the public gaze than the government could. Is the loss of a public service really a price worth paying for this political pensions fix?

Craig Berry is a Senior Researcher at International Longevity Centre-UK and former Policy Advisor on state pensions at the Treasury. This article was originally published by ILC-UK.

The Times, they are a-crazy

by False Economy

Anatole Kaletsky, Editor-at-large of The Times, today turns the table on those who believes the fiscal crisis has been caused by the banking bailout. It is not greedy bankers, but rather greedy old people. Citing the upcoming retirement of the first wave of baby boomers, and David Willet’s book on the subject, he argues that “[t]he credit crunch and recession did not create the present pressures on public borrowing and spending. They merely brought forward an age-related fiscal crisis that would have become inevitable, as by 2020 the majority of the baby-boomers will be retired.”

There is something to be said for Kaletsky’s argument. An ageing population is a challenge to society on many fronts: cultural, economic, and certainly fiscal. But is it a bad thing that people are living longer? Of course not. While they were constructing a welfare state safety net and accruing decent pensions, the baby boomers were also responsible for creating a sustained period of unprecedented economic growth, ushering in age of prosperity which has benefited society in countless ways. What is the point of economic growth if not to help fund more comfortable lifestyles at the end of our working life? Kaletsky also makes the classic mistake of not considering public spending growth per capita. Older people cost the taxpayer more, but will today’s retirees actually get more than their predecessors, or are there just more of them? The latter is far closer to the truth than Kaletsky lets on.

There is also the bizarre claim that “pensions, health, and long-term care” are protected and even “ring-fenced” entitlements. On the first two, Kaletsky may have a point. But long-term care? Ring-fenced? I must have missed something, because as far as I can tell, all of the main political parties have been scratching their heads for years trying to work out how we will pay for long-term care in the future. Despite the immense political power exercised by old people, as Kaletsky seems to think, nobody wants to stump up the money to fund a sustainable solution to the care crisis.

Kaletsky ends his article with the “modest proposal” that when people reach the age of 75 or 80, they should no longer be able to vote. If depriving UK citizens of their most basic right as members of a democratic society is “modest”, I dread to think what “radical” looks like.

If there is a “war between the generations”, as Kaletsky claims, then it is a war declared not by the baby boomers, but by the neoliberal elite desperate for somebody other than themselves to blame for the mess they have made. An ageing population is a problem, as well as an opportunity, but it is one that will be solved by forging sound inter-generational relations rather than the kind of childish nonsense being peddled by The Times.

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