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What problem do the UK and China have in common, and what does it have to do with pensions?
Sunday marked the beginning of the Chinese Year of the Rabbit, an animal thought to be clever and gentle, even timid – which if true would be a welcome change after the rather tumultuous Year of the Tiger.
The rabbit is a fertile animal, which is handy as the most recent headlines about China tell us its population has fallen for the first time in over 60 years. Despite easements in the longstanding one-child policy, many young Chinese are apparently disinclined to have children. Some experts say this is now a prevailing mindset that could be hard to dislodge and could have repercussions for the global economy.
Brits are not feeling very different about the child question, it seems – the Office for National Statistics shows the number of live births remains at historic lows despite having edged up slightly from 2020. In 2021, they stood at just under 625,000, which is roughly 100,000 fewer live births than 10 years earlier.
Immigration can help to make up for some of the shortfall; the UK population has in recent years still been growing slightly, at about 0.4% a year in 2020 and 2021. But with about a fifth now aged over 65, will this be enough to sustain the current economic and social model?
Several governments in Europe are at pains to point out that it will be a struggle to provide for a larger pensioner population with fewer working people unless changes are made. Inevitably, the changes only ever affect the not-yet-retired population.
In France, president Macron has begun his second attempt at increasing retirement age, to protests among the general population. Similarly in Switzerland, parliament is debating a fresh pensions reform package after the first was rejected in a popular vote.
In the UK, an ‘independent’ review of the state pension – led by a Conservative peer who worked at the Treasury – is expected to recommend a further acceleration of the already significant rise in state pension age, currently set to reach 67 by 2028 and 68 by 2039. Despite cost being cited in the arguments about age, the government is paradoxically keeping the expensive triple lock in place. The latter affects the current (voting) pensioners – no surprises there.
But whether delaying state pension age ever further will be of great benefit for government coffers is by no means a given. Many of those who would otherwise be pensioners may in future simply be reliant on working age benefits. These might be less generous than state pensions, but if the older – voting – population is on such benefits in ever greater numbers, in time that too could change.
What is clear is that altering the state pension has deep and long-lasting effects for entire cohorts. As such, it should be a matter for serious public debate, not ordained in a rush by a struggling government that is already focussed on the next election.