Memorandum_to_the_House_of_Lords_Select.pdf - HOUSE OF LORDS SESSION 2002\u201303 4th REPORT SELECT COMMITTEE ON ECONOMIC AFFAIRS ASPECTS OF THE ECONOMICS

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Unformatted text preview: HOUSE OF LORDS SESSION 2002–03 4th REPORT SELECT COMMITTEE ON ECONOMIC AFFAIRS ASPECTS OF THE ECONOMICS OF AN AGEING POPULATION VOLUME II—EVIDENCE Ordered to be printed 5th November 2003 PUBLISHED BY AUTHORITY OF THE HOUSE OF LORDS LONDON – THE STATIONERY OFFICE LIMITED £34.50 HL Paper 179-II CONTENTS Page ORAL EVIDENCE HM Treasury and Department for Work and Pensions Written Evidence ......................................................................................................................... Oral Evidence 11 February 2003 ................................................................................................. Supplementary Evidence.............................................................................................................. 1 7 19 Baroness Greengross OBE Written Evidence ......................................................................................................................... Oral Evidence 25 February 2003 ................................................................................................. Supplementary Evidence.............................................................................................................. 25 28 36 Mr Phil Mullan and Mr John Grieve Smith Written Evidence ......................................................................................................................... Oral Evidence 4 March 2003 ....................................................................................................... 38 42 Professor David Blake, The Pensions Institute Written Evidence ......................................................................................................................... Oral Evidence 11 March 2003 ..................................................................................................... Supplementary Evidence.............................................................................................................. Further Supplementary Evidence................................................................................................. 54 61 68 73 PricewaterhouseCoopers Written Evidence ......................................................................................................................... Oral Evidence 11 March 2003 ..................................................................................................... 77 86 Age Concern Written Evidence ........................................................................................................................ Oral Evidence 18 March 2003 ..................................................................................................... 94 100 Trades Union Congress Written Evidence ......................................................................................................................... Oral Evidence 25 March 2003 ..................................................................................................... 111 121 Dr K Rake, Women’s Budget Group, Ms K Bellamy, Fawcett Society, Professor Heather Joshi, Centre for Longitudinal Studies, University of London and Dr Jay Ginn Written Evidence from Fawcett Society and Women’s Budget Group ....................................... Written Evidence from Professor Heather Joshi .......................................................................... Written Evidence from Dr Jay Ginn ............................................................................................ Oral Evidence 1 April 2003 ......................................................................................................... Supplementary Evidence from Dr Jay Ginn ................................................................................ Further Supplementary Evidence from Dr Jay Ginn.................................................................... Further Supplementary Evidence from Dr Jay Ginn.................................................................... 131 137 141 144 156 159 160 Consumers’ Association Written Evidence ......................................................................................................................... Oral Evidence 8 April 2003 ......................................................................................................... 161 167 Equal Opportunities Commission Written Evidence ......................................................................................................................... Oral Evidence 8 April 2003 ......................................................................................................... 174 184 Commission for Racial Equality and Policy Research Institute on Ageing and Ethnicity Written Evidence from Commission for Racial Equality ............................................................ Written Evidence from Policy Research Institute on Ageing and Ethnicity ................................ Oral Evidence 29 April 2003 ....................................................................................................... 192 196 202 Engineering Employers’ Federation Written Evidence ......................................................................................................................... Oral Evidence 6 May 2003 .......................................................................................................... 210 212 Confederation of British Industry Written Evidence ......................................................................................................................... Oral Evidence 6 May 2003 .......................................................................................................... 218 223 National Association of Pension Funds Written Evidence ......................................................................................................................... Oral Evidence 3 June 2003 .......................................................................................................... Supplementary Evidence.............................................................................................................. 233 235 244 Association of British Insurers Written Evidence ......................................................................................................................... Oral Evidence 3 June 2003 .......................................................................................................... 246 250 Chartered Institute of Personnel and Development Written Evidence ......................................................................................................................... Oral Evidence 10 June 2003 ........................................................................................................ Supplementary Evidence.............................................................................................................. 258 260 269 Professor Philip Booth, Editorial and Programme Director, Institute of Economic Affairs and Professor Richard Disney, School of Economics, University of Nottingham Written Evidence from Professor Philip Booth............................................................................ Written Evidence from Professor Richard Disney....................................................................... Oral Evidence 17 June 2003 ........................................................................................................ 271 297 300 Financial Services Authority Written Evidence ......................................................................................................................... Oral Evidence 17 June 2003 ........................................................................................................ 310 313 Pensions Policy Institute Written Evidence ......................................................................................................................... Oral Evidence 24 June 2003 ........................................................................................................ Supplementary Evidence.............................................................................................................. 322 328 335 The Actuarial Profession Written Evidence ........................................................................................................................ Oral Evidence 24 June 2003 ........................................................................................................ 338 346 Dr Philip Taylor, Cambridge Interdisciplinary Research Centre on Ageing, University of Cambridge Written Evidence ......................................................................................................................... Oral Evidence 1 July 2003 ........................................................................................................... 356 360 Rt Hon. Frank Field MP, Professor Steve Webb MP, Mr David Willetts MP Written Evidence from Rt Hon Frank Field MP .......................................................................... Written Evidence from Professor Steve Webb MP...................................................................... Written Evidence from David Willetts MP.................................................................................. Oral Evidence 8 July 2003 ........................................................................................................... 370 372 374 379 Rt Hon. Andrew Smith MP, Secretary of State for Work and Pensions Oral Evidence 15 July 2003 ......................................................................................................... Supplementary Evidence.............................................................................................................. 392 402 Dame Rennie Fritchie DBE, Commissioner for Public Appointments Written Evidence ........................................................................................................................ Oral Evidence 21 October 2003................................................................................................... 408 413 WRITTEN EVIDENCE Association of Retired and Persons Over 50................................................................................ AXA Sun Life .............................................................................................................................. Beatty, Ms Christina and Fothergill, Professor Stephen .............................................................. Barr, Professor Nicholas .............................................................................................................. Cabinet Office.............................................................................................................................. Civil Service Pensioners’ Alliance............................................................................................... Continuing Care Conference........................................................................................................ Department for Constitutional Affairs ......................................................................................... Department for Culture, Media and Sport.................................................................................... Department for Education and Skills ........................................................................................... Department of Health................................................................................................................... Government Actuary’s Department ............................................................................................. Home Office................................................................................................................................. Institute for Volunteering Research ............................................................................................. International Longevity Centre UK ............................................................................................. Ministry of Defence ..................................................................................................................... Murphy, Mr Richard, BSc FCA................................................................................................... North East Pensioners Association .............................................................................................. Oxford Institute of Ageing........................................................................................................... Pension and Population Research Institute .................................................................................. PARITY ....................................................................................................................................... Price, Ms Debora ........................................................................................................................ Royal Ordnance Pensioners’ Association .................................................................................... Scottish Life ................................................................................................................................. Standard Life Assurance Company.............................................................................................. Walker, Professor Alan ............................................................................................................... Wallace, Mr Paul ......................................................................................................................... Warr, Emeritus Professor Peter.................................................................................................... Weale, Mr Martin, CBE............................................................................................................... 424 426 428 430 432 434 439 441 441 442 442 443 446 447 448 450 452 457 460 464 465 466 473 474 476 478 482 484 487 MINUTES OF EVIDENCE SUBMITTED TO THE ECONOMIC AFFAIRS COMMITTEE TUESDAY 11 FEBRUARY 2003 Present: Elder, L. Newby, L. Oakeshott of Seagrove Bay, L. O’Cathain, B. Paul, L. Peston, L. (Chairman) Roll of Ipsden, L. Sheppard of Didgemere, L. Vinson, L. Memorandum by Department for Work and Pensions The Implications of an Ageing Population 1. This paper has been written at the request of the Economic AVairs Committee in the House of Lords. Where relevant, material from the recent Green Paper on pensions1 has been used. The paper has taken account of the Committee’s guidance to keep the answers brief. It broadly follows the framework of questions given in the call for evidence concentrating on (i) the length of working life, (ii) fundamentals of pensions policy and (iii) women. Part One: Demographic Change 2. The United Kingdom population is ageing but not as quickly as in many other developed countries. One measure of ageing is the old-age dependency ratio, which measures the ratio of the number of people aged over 65 years to the number of people of working age. The main drivers for increases in the old-age dependency ratio are increases in life expectancy on the one hand and falls in the fertility rate, on the other. The dependency ratio is also aVected by levels of net migration. 3. In the UK, the average number of years spent in retirement has increased significantly. Figure 1 shows past, current and expected future life expectancy at age 65 for men and women2 in the United Kingdom. Figure 1: Life expectancy at age 65 Year Men Women 1928 1960 2002 2025 2050 11.5 12.1 16.0 18.3 19.0 13.3 15.3 19.0 21.1 21.7 Source: Government Actuary’s Department, 2002 4. Increases in life expectancy have been similar across developed countries. Although fertility rates are falling in the UK (the birth rate has declined from its peak in the 1950s and 1960s and is now at an all time low), they are not falling as dramatically as in some other countries. 5. These trends taken together mean that the ageing of the population is less marked in the UK compared with Japan and most European Union (EU) countries. EU countries as a whole are expected to experience almost a doubling in the old-age dependency ratio in the next 50 years, while Japan is likely to experience an even greater increase. By contrast, the old-age dependency ratio in the UK will rise by a relatively moderate 15 percentage points to almost 40 per cent between now and 2050. This is illustrated in figure 2 below. 1 “Simplicity, security and choice: Working and saving for retirement”, Department for Work and Pensions, HM Treasury, Inland Revenue, CM 5677. 2 State Pension age for women is currently 60. 2 minutes of evidence submitted to the 11 February 2003] [Continued Figure 2: Old-age dependency ratios in selected developed countries ( per cent) France Germany Italy Netherlands Spain Sweden UK Weighted average of EU member states Australia Canada Japan USA 1975 2000 2025 2050 21.5 23.3 18.9 16.9 16.1 23.5 22.6* 20.7 13.6 12.9 11.6 16.3 24.5 24.1 26.7 20.1 24.8 27.1 24.4 24.5 18.2 18.5 25.2 18.6 36.2 39.0 40.6 34.3 36.1 41.5 32.8 37.1 29.2 32.6 49.0 29.3 46.7 54.7 68.1 45.0 73.8 54.5 39.2 54.7 37.5 40.9 71.3 34.9 Sources: United Nations, World Population ageing 1950–2050, 2001, except for UK figures which are based on Government Actuary’s Department historical data and 2001 based interim principal population projections. Notes: Dependency ratio is people aged 65! as a percentage of those aged 15–64. * Figures for 1976. Early retirement 6. The trend toward rising life expectancy could be compounded by continued early retirement across the industrialised world. As developed countries have become richer, people have opted for earlier retirement, despite longer expected periods of retirement. Figure 3 shows that, in a range of OECD3 countries, on average, people currently tend to retire before 65 years of age (state pension age for men in the United Kingdom). Figure 3: Average age of withdrawal from the labour force in selected OECD countries in 1999 Country Men Women Canada Germany Italy Japan Netherlands Sweden UK USA Average 62.4 60.3 58.8 68.5 60.4 63.7 62.6 64.6 62.3 60.8 60.1 57.9 64.7 59.8 62.7 60.4 63.4 61.1 Source: Ageing and income OECD, 1999 (1998 data for Germany and Netherlands). Notes: Figures refer to median age of withdrawal. 7. In the UK, the decline over time in the employment rate of older workers has been reversed somewhat since 1997. However, more still needs to be done. Employment rates for men and women still decline quite sharply after age 55. By state pension age (60 years for women and 65 years for men) around two-thirds of men and a half of women have left the labour market. In total, a third of people between 50 and state pension age—almost three million people—are outside the labour market. 8. Early retirement adds to the “dependency ratio” problem, because there are more people outside the labour market who need to be supported by those in work. 3 Organisation for Economic Co-operation and Development. 3 economic affairs committee 11 February 2003] [Continued The Implications for Economic Growth 9. With the ratio of inactive to employed people rising, labour productivity has to increase just to maintain Gross Domestic Product (GDP) per person. If activity rates by age remain broadly constant, it also means that increases in labour productivity will be the only source of economic growth after about 2020. 10. This is illustrated in the following table, which is based on Her Majesty’s Treasury estimates4 and shows the expected impact of changes to employment and productivity on average economic growth in the coming decades. Figure 4: Projected real GDP growth and its components (per cent) Year Productivity Employment Real GDP 2011–20 2021–30 2031–40 2041–50 2.00 0.25 2.25 2.00 "0.25 1.75 2.00 0...
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