Just one extra little effort…

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Après trois années d’austérité, le gouvernement britannique a décidé de demander encore un petit effort à ses concitoyens, en reculant encore l’âge légal pour percevoir la retraite d’Etat. Ce dernier passera en effet à 69 ans vers la fin des années 2040, contre 65 actuellement. Cette réforme nous a donc poussées à revenir sur  le fonctionnement des retraites britanniques et leur évolution.

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The retirement system in the United Kingdom is one of the oldest and most complex in Europe. Entrepreneurs created pension funds at the beginning of the industrial revolution. First, let’s clarify how retirement pension works, and what the difference is with other countries…

There are two types of retirement systems in the world, the Beveridge system and the Bismarck system. The first one gives everyone a pension, funded by taxes; it is a liberal system. The second one gives a pension to those who worked, and the amount is proportional to what you have earned in your working life. France, Germany, and Belgium have the second system.  In 1908, the Old Age Pensions Act was passed and created a basic pension that provided 5 shillings (£0.25) a week for those over 70 who had earned less than £31.50 a yearSince then the state has provided a basic pension in order to prevent poverty in old age, but the amount is very low.

Therefore three different state schemes were introduced to provide  an additional pension (on top of the basic state pension): graduated pension, state earnings-related pension, and state second pension. They are available only to employees who pay the national insurance, and they are compulsory. On top of state pensions, there are private and optional occupational pensions, established by employers. They were created under the Pension Schemes Act of 1993, the Pension Act of 1995 and the Pensions Act of 2008. The amount depends on a number of factors, one of which is the accumulated amount of the fund, and is organized by capitalization. Unlike a distribution system, a capitalization system puts the money of pensioners on the financial system, which can be dangerous in case of a financial crisis. Finally, Britons can also sign up for personal pensions, which are usually like occupational schemes. 

Is it surprising that the British government should ask the British population to make new sacrifices as the UK’s economy is doing better? Indeed unemployment has decreased and economic growth will reach 2.4% in 2014. In spite of the critics, David Cameron seems to have managed to rectify the economic situation. To control public expenses, the government has decided to  allow people to retire at 68 in 2030 and at 69 in 2040.  The Labour Party supports this decision and thanks to this measure the British government should save 500 billion pounds. Nick Clegg said that he knows that it would be difficult to accept, but claims that “the point at which you retire is being shifted as people become more affluent and live longer. The rules on retirement that were set decades ago have to keep up with demographic changes”.

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Indeed it is hard for the British population to accept these new measures. For example women will particularly be hit by them. According to the Guardian, Women “born in 1951 started drawing their pension at age 61, but for those born in the autumn of 1954 and who are now aged 59, the official retirement age is 66 – a six-year shortfall” and « If they haven’t managed to save a decent private pension, these women face an impoverished retirement or having to carry on working. ».

The newspaper also advises young people to start working early and to save big, because “if governments keep on raising the retirement age as life expectancy increases, children born in 2050 could be 84 before they collect their pension, according to predictions by PricewaterhouseCoopers, and could expect to live to be 104.” Experts advise to save 12% of your salary, if you want to have a comfortable retirement, but it is hard to save money when you already have to pay back your tuitions fees, to buy food, and to rent a flat (mostly with the ever-increasing house prices). Moreover Wages have decreased in Britain for an overwhelming majority of the population. It will be increasingly difficult for them to save! Fortunately for some people, big companies have now to save for their employees, it’s called auto-enrolment

Life expectancy increased significantly in the post-war boom years precisely because living conditions improved (not just because of advances in medicine): people lived better and longer because they didn’t work as hard as their 19th-century counterparts! Now that Britons are becoming poorer, have less access to good health care, and have to work into their 70s, life expectancy will no longer increase (statistics suggest it’s stopped growing). So to use demographic changes as an argument is somewhat controversial! People live longer because they retire! Let’s not reverse it!

Moreover unemployment has been structurally higher in the past 3 decades than in the previous four decades. Even if they want to work, many senior workers are likely to be unemployed as they have to cope with an “ageist” market (a market that discriminates against older people).

Emmanuelle SIMONET & Léonor WEJMAN

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