Ever since the publication in 2011 of David Willetts’ provocative and fascinating book ‘The Pinch’, inter-generational fairness has taken on a particular meaning. It has come to mean redressing the balance between the old and the young so that some of the wealth accrued by those in their fifties and above is taken away and given to the young.
It is an interesting thesis and makes for a good book which every political enthusiast should read. But it is in danger of leading to habits of thought which will produce unfairness the other way. If it is a given that the elderly are not just privileged but have acquired that privilege in an unjust way, then punishing them becomes morally justified. This would be wrong – and a terrible basis for public policy. It would also, almost incidentally, be political suicide for the Conservative Party to take many steps down this track.
One of the lessons from the difficulties of the 2017 election campaign is that proposals which apparently attack people’s savings or potential for inheritance will be political dynamite if they are not discussed over a long period of time, giving the opportunity for modification. Even if they are completely rational and fair they need to have been tested by public debate to obtain a degree of acceptance.
The 2017 debate was about the funding of social care, but the lessons go much deeper. We need to think about the whole range of policies which particularly affect older people in a radically new way.
My thoughts about a new policy approach to older people are based on reading another excellent book: ‘The 100-Year Life’ by Lynda Gratton and Andrew Scott. Its subtitle is ‘Living and Working in an Age of Longevity’, and this is the real root of why we need a new approach.
The book itself covers how individuals and corporations should cope with the new world of longevity – but understandably has little to say about public policy. Change is needed there as well. But, so far, apart from in the field of pensions, it has not moved beyond the stage of concerned rhetoric.
Understand an ageing society
Politicians and others talk about how we live in an ageing society, but we have not remotely adjusted to what this means. Our population is projected to grow by around 10 million over the next 40 years, and almost all this growth comes from older people, particularly those in the oldest age group. There are 5.3 million over-75s today. That number will double in 40 years.
In other words, both the individual and the state should be presuming a life span of between 90 and 100 years. This means that our current models of education, training, saving, healthcare and social care are all based on a false premise.
The new model
Broadly speaking, we spend around the first 20 years of our life learning, while living at someone else’s expense. Then the system expects us to work for around 45 years, generating not only the income to keep us comfortable but also the taxes to pay for the public services we use and the savings to supplement the money that others will provide us in retirement, which is implicitly assumed not to last too many years.
Every part of this underlying assumption behind the design of the welfare state is wrong for the 21st century. In an age of accelerating change, no one will develop all the knowledge and skills they need for a working life by their early twenties. In their years of working full-time, only a fortunate few will be able to live comfortably and save enough to keep them through decades of retirement. The idea of a few years of well-earned leisure at the end of a physically demanding working life does not work if those few years stretch out to a number of decades. That time needs to be spent usefully if it is not to lead to boredom, loneliness and chronic ill-health.
There are clearly policy implications for those of all ages in this thesis. I will concentrate only on those who have reached what is the traditional retirement age of the mid-sixties. (I know there are still those fighting to return the female retirement age to 60, but they are vainly struggling against the tide of demographics.)
The three ages
I would suggest that we need to start thinking about the three ages of old age. The first roughly covers between 65 and 75. In an age when people are living more healthily for longer, and when the amount of hard physical labour has been drastically reduced, the vast majority of people in this age group ought to be working. This is not some Dickensian solution, but rather an acknowledgement of what makes most people happy.
There is an increasing body of evidence that people who continue working through their sixties are healthier in body and mind than those who don’t. Obviously for many this may involve reduced hours or days, but the sense of purpose and companionship that a workplace provides must not be underestimated.
What public policy implication does this have? It means that we need to make a reality of a phrase that has been appearing on politicians’ lips (including mine) for a long time without ever quite amounting to much. That is ‘lifelong learning’.
The latest attempt to pull together policy on this was the Government Office of Science paper of November 2017 called ‘Future of Skills and Lifelong Learning’. It pointed out, correctly, that lifelong learning is the pathway for skills-driven economic growth, especially at a time when middle-skilled occupations are likely to decrease in the face of AI and other technologies.
All of this is true, but it can’t disguise the fact that the overall level of adult participation in learning has not improved in the past 20 years, and that older workers are the least likely to have taken part. This has to change, and new ways need to be found to make lifelong learning a default, not an occasional exercise often inspired by a spell of unemployment.
For example, why not make the student funding regime (whatever the quantum of money paid by the student and whatever the rules for doing so) a lifelong account, from which you are entitled to draw down support money at any stage between 18 and 65? If this were combined with the right to take a period of time off full-time work specifically for re-training, then workers could plan their own re-skilling timetable. If change continues to accelerate, young workers might need to plan a learning break every decade of their working lives. In particular, those around 60 could take a clear-eyed view of what they need to keep them employable for another decade or more.
The second age I would suggest covers from 75 to the early and mid-80s. By now people should have worked enough and saved enough (though see below) to be more comfortable about their financial position. There will inevitably be, for many people, physical impairments which will restrict the capacity for activity.
For many of this group the most difficult decisions relate to housing, so this is the next policy area that needs tackling.
From the individual’s point of view, the first problem is that too many elderly people are living in houses that are too big for them. They are reluctant to move for a variety of perfectly good reasons. They may have a strong emotional attachment to the home in which their children grew up. They want to pass that specific home on to their children. The costs of downsizing (such as stamp duty bills) may be too high. There is a shortage of suitable housing to move into.
All of these need solutions. One important change should be to aim at your last home being your best home. It will be smaller than your family home, but it should have facilities and quality that are better (and in some cases specific for older people) in return for less space. There is a need to stimulate demand for this type of housing. Private sector investment will be available for this profitable and growing business, as long as the planning regime is friendly. One suggestion is to create a new use class of retirement housing, so that councils can include a requirement for this in any new developments, just as there often is for affordable housing.
It may also be worthwhile considering special schemes to encourage older people to move, along the lines of the various schemes for first-time buyers that have been successful. We could for example consider a reduction or even abolition of stamp duty for the over-70s, if they are selling a house in which they have lived for a long time.
One subset of this desirable housing for older people is the retirement village. The percentage of over-65s in the UK living in retirement communities providing care and support is 0.5 per cent. In the USA it is 5.6 per cent and in Australia and New Zealand over 5 per cent. Those who live in this type of housing are less likely to suffer falls, less likely to spend time in hospital, and are less expensive for the social care system.
So the fact that we have less of this type of housing is a problem, the root of which is that local authorities are wary of importing too many elderly people. This is because the local authority currently has to find the bulk of the money for care costs, which for this group will inevitably rise over the years. So this type of specialist housing is discouraged at just the time when we should be encouraging it more.
One solution for this is to take the funding (though not the organisation) of social care for the elderly fully back into national government hands, as it was before 1993. This would remove the financial pressure on councils and would therefore remove the logic for them to discourage the building of housing which might encourage older people to move into their area.
We therefore need a new set of housing policies for the over-70s. But we are also now beginning to consider the issues facing the third group, those who are over 80 and may have to contemplate the eventual need for residential social care.
Residential social care
This is a subject that has been a difficulty for successive Governments over two decades, and today a solution is still not agreed. The Labour Government in 2010 suffered the backlash against a so-called ‘Death Tax’, and the Labour Party retaliated with cries of a ‘Dementia Tax’ against the Conservatives in 2017.
In a recent Centre for Policy Studies report, I proposed a Universal Care Entitlement for all, in the hope of establishing a cross-party consensus about the way forward on this conundrum.
There are three clear principles which need to be observed to provide peace of mind for older people and their children as they contemplate the prospect of social care.
The first is that the system must provide more money for social care than at present, and make sure it is spent wisely. What this means in practice is that we need to fill a funding gap which has been estimated in a joint report by the two relevant Commons Select Committees to be £2.5 billion. This gap could be filled with a combination of extra National Insurance payments from older workers who are still in employment and the use of a small proportion of the housing wealth of those over 65. They can use a one-off payment to guarantee the protection of the rest of their assets without having to worry about their erosion or disappearance because of care costs.
The second principle is that the system must be fair across the generations. It should ensure that older people can obtain the care they need, guaranteed at a higher level than is too often experienced today, while not burdening working-age people with simultaneously having to pay for their own care and the care of previous generations.
Similarly, older people should not be penalised for being responsible by saving through their lives. If people are contributing more from these savings, they should receive something for something. Also, the system should not discriminate between different medical conditions. Everyone should be entitled to the same care with the same funding conditions whatever their condition.
The third principle is that the system must increase the supply of reasonably priced retirement housing. Funding is one problem, but it is equally important to ensure there are enough carers and care homes to cope with demand. The housing proposals made above will contribute to solving the housing supply problem, which will itself help to reduce demand for residential care places. But there will still be a need for more care places to ensure a degree of competition between providers.
Care will continue to be an issue which it is essential to sort if older people are to be treated fairly. But it will also be necessary to ensure that the pension system can play its part in providing peace of mind.
In most previous publications of this kind, pensions would have been absolutely central to any analysis of how to improve the futures of older people. It is a sign of the improvements in pensions in recent years that pensioner poverty has fallen dramatically. Indeed, the biggest issue in ensuring a financially comfortable old age now concerns those who are not yet at that age.
Since 2012, auto-enrolment has meant that nine million extra people are saving for a pension. At the same time the new state pension will ensure that most people have more money when they retire than they would have had under the old system.
Despite this we should be clear that many people are still not saving enough. According to the Pensions and Lifetime Savings Associations, only half of savers are currently on track to have sufficient means in retirement. Part of the problem is that people do not know how much they will need in later life.
The best policy suggestion here is an approach similar to Australia’s, which allows people to work out how they need to be saving to achieve a ‘minimum’, ‘modest’ or ‘comfortable’ lifestyle in retirement. The PLSA itself recommends this approach, and I think it is right to do so.
In pursuit of this we should all also have a mid-life Financial MOT between the ages of 40 and 50. This will enable people to think about their older years at a time when they can do something about it, so that they do not reach old age unaware of the costs that they face, and their ability to meet those costs.
Fewer old people fall into poverty now, which is a huge social advance, and one which had gone largely unnoticed. But we need to continue to set a framework so that people can make the right choices for themselves, while providing a safety net to catch them if their plans go wrong. Pensions reform requires long-term thinking, but also immediate action on a number of fronts.
The overall package recommended in this chapter would amount to a wholesale rethinking of our attitude to old age. This book is about the future and how we can seize its opportunities, so in previous eras it would have seemed odd to include a chapter on older people. This is precisely the mindset we need to change. People are not just living longer, they are active for longer, and more demanding. To see them as grateful passive recipients of what the state provides is an anachronism that a progressive Conservative Party cannot afford.
Instead we need to offer policies which meet their needs while also meeting the Conservative principles of self-reliance, competition and financial prudence. Within the range of policies covered here, I hope that we can find a basis on which we can offer an optimistic future to those facing the issues of old age.
This article first appeared in ‘Britain Beyond Brexit’, a collection of essays published by the Centre for Policy Studies. You can purchase a copy of the book HERE.
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