Synopsis: The Institute of Economic Affairs has added its thoughts to the growing pile of research on UK state pensions.

Date posted: Thursday, January 09, 2014

The Institute of Economic Affairs (IEA) claims to be ‘the UK’s leading free market think tank’, so it can be expected to take a somewhat sceptical view of state involvement in any area. That is certainly the case when it comes pension provision, as made clear in an IEA discussion paper just published, ‘Income from work – the fourth pillar of Income provision’.

The paper grabbed some media attention for its proposals, although they seem unlikely to get far, given politicians’ general subservience to the ‘grey vote’. However, any MP planning to retire at the next election might fund some interesting ideas among the IEA’s points:

The paper says that ’employment rates among the elderly should have increased since the 1960s to reflect increasing life expectancy and improved health.’ Instead the paper notes that ‘the employment rate among men aged 55-59 decreased from over 90% to less than 70% between 1968 and the end of the 1990s’. It does then point out that there has been a recovery to about 80% by 2008 but fails to pick up a subsequent drop to 75.4% in 2012 according to ONS data. Either way the result is that ‘Today people have shorter working lives than at the end of the 1960s.’

The EU as a whole is worse in terms of older age inactivity: the average employment rate between 55 and 64 is 48.8% across member states, with Italy coming bottom at just 40.4%. The UK registers 58.1% on the same yardstick and the USA 60.7%.

‘To facilitate beneficial labour market participation at older ages’, the paper suggests:

From November 2018, the state pension age (SPA) for men and women should be increased by two months every quarter, resulting in an SPA of 68 by January 2023. The current proposal announced in the Autumn Statement is for an SPA of 68 to be reached in ‘mid 2030s’, while the existing legislation has it phased in by 2046.

From January 2023 the IEA says that the SPA should be ‘directly to increases in life expectation.’ Quite how is not made clear.

‘The state pension should be replaced by compulsory, private DC pension arrangements.’

In words that will be music to Mr Osborne’s ears, the IEA says ‘Disability benefits should be reformed to reduce benefits and much more active strategies should be used to assist people receiving disability insurance back into work.’ The goal is to close down the opportunity to use disability benefits to fund early retirement, something that used to be a familiar escape route in the UK (and helped to keep down unemployment numbers).

In words that will not be music to Vince Cable, the IEA says ‘Older people should be exempted from employment protection legislation not mandated by the EU. One example is to allow no-fault compensated dismissals of workers who are recruited within five years of SPA.’ The IEA would also like to examine the wisdom of abolishing age discrimination laws. The logic behind these moves is that the spectre of employment law claims is a disincentive for employers to take on older workers.


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