UK pensions: tough choices as ‘old age support ratio’ shrinks（475words）

By Josephine Cumbo

Over the course of the 20th century the UK made big strides to improve the life expectancy of its citizens, who 100 years ago were considered middle-aged at 25.

Back in 1901, a male could typically expect to live to 45. By 2012, life expectancy for men had nearly doubled to 79, according to the Office for National Statistics (ONS).


While rising longevity is cause for celebration, the challenges of a greying population are looming large, not only for retirement income systems, but also for health and social care services.

As in other developed countries, advances in medicine and diets have contributed to UK citizens living longer, a trend set to continue. By 2050, the proportion of the UK population aged 65 and over is projected to reach nearly a quarter at 24 per cent, up from 17 per cent in 2012, according to the ONS.

Strikingly, the fastest increases will be among the “oldest old”, with the proportion aged 85 and over forecast to treble from 2 per cent to 6 per cent.

Academics say these rapidly evolving demographic changes will affect everyone in society, regardless of age.

“At worst, not only could it imply rising poverty, poor health and the erosion of social care for those in old age over the coming decades, but also lower standards of living for all of us, as ageing acts as a drag on economic growth and the future delivery of public services,” says David Sinclair, director of the International Longevity Centre UK, a think-tank.

One of the main worries is that as the proportion reaching retirement age grows, the number of working age people will shrink as birth rates decline.

This is a concern because UK state pension payments are funded through taxation and national insurance contributions from those of working age.

The number of working age people to every pensioner, or the “old age support ratio”, is forecast to fall to 2.9 by 2050, from 3.3 in the mid-1970s to 2006.

“Tax revenue from those in work may fail to keep up with demand for social security and healthcare from an increasingly large proportion of people aged over 65 and out of work and who have poor health,” adds Mr Sinclair.

“This will force governments to make tough choices.”

Given this looming problem, the government has pushed back the qualification age for the state pension to 67 by 2028. Currently, the state pension age is set to equalise at 65 for women and men by 2018.

It has also taken steps to address big shortfalls in private pension savings, through the automatic enrolment of eligible staff into workplace pensions.

Under this policy, introduced three years ago, 2 per cent of a worker’s qualifying earnings is saved into a pension, comprising a contribution from employer, employee and tax relief, rising to 8 per cent by 2018.