Behind many of the exhortations for younger people to save more is an unspoken assumption: the state pension as we know it will not be there for them when they come to retire, replaced either by a means-tested benefit or something far less generous. Sounds extreme. But with calls already for the state pension age to rise to 70 or above, it is more likely than many would like to admit.
First, government is already buckling under the pressures of an ageing population. When the NHS was established, many assumed that as the new system began to improve the health of the population, spending on the service would begin to fall. The opposite has happened.
A wealthier, ageing population demands ever more sophisticated treatments, requiring ever greater amounts of money to meet that demand. The care system is a victim of the same dynamics. Cash injections – such as the extra £2bn the chancellor found in the latest Budget for care – serve only as a temporary stop-gap for services that have essentially unlimited demand.
Second, political support for ever-rising spending on the elderly is not as sustainable as it appears. Today, there is a recognition that, for all the talk of a golden cohort of wealthy pensioners enjoying spectacular housing wealth, this is only really true of younger retirees and an average hides a multitude of sins. A “silent generation” of over 75s is far more likely to rely on government support, and they clearly have no opportunity to make alternative financial arrangements should it be cut.
But a serious problem is being stored up for the future. The state pension triple-lock, which guarantees the pay-out will rise each year by the greatest of inflation, average earnings growth or 2.5 per cent, severs any connection between the cost of the benefit and the state of the economy. An endless upwards ratchet of pension spending requires the government to make ever deeper cuts to other areas of public spending to reach its deficit target. It surely cannot go on forever. At some point tolerance for this approach to deficit reduction will fade as working voters tire of supporting a growing number of pensioners, some on incomes higher than their own.
Third, retirement as we once knew it – withdrawing from work in our 60s – is already dying. The number of over 65s in employment has boomed and, although many move into lower paid, part-time work, this surely itself will change as healthier older people decide to stay longer in their old jobs.
So do young people face an old age of misery and penury? Not really – if they recognise that they will not simply be able to replicate the life patterns of their parents.
In their book The 100-Year Life, Andrew Scott and Lynda Gratton posit that as lifespans stretch ever further we will move from a three-stage life – childhood, work, retirement – into one of four or five stages, with people taking time out in the middle of their careers to retrain and then spending less time in actual retirement.
There is already evidence that economic and demographic trends are creating a new paradigm. Few of our parents will have spent their 20s living at home with their parents, many more will have been married and had children before they were 30, and a higher proportion is likely to have already been settled in their career. Twenty-somethings are either late starters, or something new entirely.
So you may be as likely to get support for adult education in your late 40s or early 50s as a state pension. It’s early days, but it is instructive that the chancellor announced in his latest Budget up to £40m of spending to test different approaches to help people retrain and upskill throughout their working lives.
It won’t all be sunlit uplands. There’s no getting away from the fact that the only guarantee that you’ll enjoy a prosperous older age is if you save more yourself. But there are good reasons to approach later life, even without substantial support from the government, with confidence.