The pensions crisis and longer life expectancy are forcing policy makers and employers throughout the world to rethink retirement. Policy makers in Britain and other industrialized countries over the next 20 years must assume that people will need to work until they are older. Will retirement as we know it be postponed for a few years? Or will retirement be reshaped, to become less age-related and more fulfilling?
In the recent study Reshaping Retirement, Britain's Tomorrow Project addressed a wide range of topics about the future of people's lives in Britain over the next two decades. The study focused not just on particular drivers of change, such as demographic, economic, and social developments, but also on issues that will have a decisive impact on retirement in the next two decades, such as what will happen to the labor market for older people, to government pensions, and to lifetime savings for retirement.
The key issue for retirement is how to square the triangle of longer life expectancy, adequate retirement incomes, and younger workers' desire to increase their current living standards. Our starting point is that people will resolve this conundrum by working till they are older. The recent reversal of the trend toward early retirement will continue, and growing numbers will work beyond the state pension age.
As this happens, three questions will have to be tackled. How will the transition out of employment be managed? Given that Britain's labor market is likely to remain highly polarized in both skills and income, will the state pension system prevent those at the lower earnings level from slipping into old age poverty? What will be done to encourage people to increase their long-term savings?
Linking these issues is an over-arching theme: How will old age be experienced in the future? Will it remain much as it is now, but just start at an older age? Or will retirement be reshaped so that many more older people mix part-time work with extended leisure, and have higher incomes with which to enjoy their old age, bringing about a much more positive view in society of the aging process?
UP FOR GRABS: RETIREMENT ON THE AGENDA
Retirement is a relatively modern concept. Until recently, there has been a trend toward longer retirement (i.e., leaving the workforce at younger ages), but longer retirements are now being questioned because lower fertility rates will reduce the size of the working population, making it harder to fund government pensions and other benefits for older people. Later retirement is an obvious part of the solution. People are working for fewer years but retiring for longer periods, which is financially untenable; again, later retirement is an obvious answer.
Tackling poverty among older people has become a political priority, but the current solution--means testing--is unpopular. Later retirement in return for a higher state pension for all is the most realistic alternative. Many people will not have saved enough for their retirement if it lasts for as long as it does now; they may have to postpone retirement instead. The government is starting to make it easier for people to stay on at work by encouraging phased retirement and introducing (from 2006) a ban on age discrimination.