Bad news for pension reform – we’ll live far longer than ministers expect

 
Paul Ormerod
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IN A democracy, it is always a risky business for politicians to tell the electorate things they do not want to hear. So Steve Webb, the pensions minister, must be congratulated. He told the truth about the retirement age. In a speech last week, he said bluntly: “If someone tells a 30 year old what their state pension age is going to be, they are lying”.

The reason behind his frankness is the massive projected increase in Britain’s population that sits over the conventional age of retirement. The number of over 65s in England is expected, on official projections, to increase by 51 per cent over the next 20 years. The numbers of those aged 85 and above will double by 2030.

On current policies, the pension age will rise to 67 for both men and women – by 2028. But this will almost certainly prove to be far too low. Life expectancy for those now in their 40s and 50s is very likely to be considerably higher than the official estimates suggest.

The problem with our current forecasts is illustrated by the work of Robert Fogel, an American economic historian who won the Nobel Prize in 1994. A key theme of his studies is the interrelationship between the economy and the health and longevity of the population. The time lags involved can be very long. For example, 1930s America saw the worst depression in the entire history of capitalism. Yet life expectancy between 1929 and 1939 increased by four years, and the heights of men reaching maturity during this period increased by 1.6cm.

Fogel attributes this to social investments, like slum clearance, which were made in the decades around 1900. Reductions in malnutrition during childhood also have dramatic impacts on life expectancy decades later. The age cohorts born in the 1950s and 1960s were effectively the first in British history never to experience food shortage in any way. And the effects will come through in quite dramatic increases in life expectancy – unhappily for our pensions minister.

The one optimistic note, for the public finances at least, is that Fogel did a lot of work on the relationship between body mass index and longevity. Obesity really does reduce life expectancy sharply. But if you lead a healthy lifestyle, don’t expect to retire until well into your 70s.

Finally, the answers to the Christmas quiz. This was about annual growth in GDP in Western economies since 1900. The biggest cumulative fall in real GDP in peacetime was 28.5 per cent in America between 1930 and 1933. The biggest fall in any single year was in Austria in 1945, when GDP fell by no less than 59 per cent – not surprising given that large chunks of the country were overrun by the Red Army. The biggest annual drop in peacetime was in 1923, at the time of the German hyperinflation, when output in that country fell by 17 per cent. Finally, to end on an optimistic note, there was no recession in Finland between 1945 and 1991.

Paul Ormerod is an economist at Volterra Partners, a director of the think-tank Synthesis and author of Positive Linking: How Networks Can Revolutionise the World.