There was a time when living to 100 was seen as a triumph of both personal fortitude and the wider health care and pension system that was leaving the dark days of low life expectancy behind.
Sadly current headlines imply that our attitude towards centenarians should change to one of fear and trepidation, with every newly-issued 100th birthday card from Buckingham Palace just one more nail in the coffin for the country’s finances. This is not true, as a nation and as individuals we will need to adapt and make changes but we have adequate time and resources to do so.
The figures from the Department of Work and Pensions used to whip up the worry in today’s articles are not new and were factored in by the recent Office of Budget Responsibility projections for an ageing society.
At the moment the Government increases income tax thresholds in line with inflation rates rather than the average rise in earnings. As earnings are projected to grow more than prices in the long run, the OBR understands that this situation (known as “fiscal drag”) will not go indefinitely, for eventually almost everyone would be paying income tax and, moreover, most tax payers would be included in the higher brackets. If this were the case, projections from the OBR show that it would raise an extra 2.6% of extra revenue between 2015 and 2030 – outstripping the projected 2.5% of additional age-related revenue.
Put another way – between 2015 and 2030 we need to raise spending by around 2.5% of GDP to take account of ageing. The deficit reduction programme is currently closing a fiscal gap of 7.5%. So from 2015 we will have a fiscal challenge that is one third the size, with three times as long to phase in changes.
All of the above calculations do not take into account any further changes to State Pension Age, which we accept may need to happen to adapt to a changing society. Surprising and important new analysis from the Office of Budget Responsibility shows the total amount of tax raised will rise modestly with an ageing population since income tax, VAT and capital taxes are paid by all.
As individuals we need to embrace the fact that we are living longer by saving more towards a retirement which is likely to be longer than that enjoyed by our parents. Many of us will also work past the traditional age of retirement and should help put pressure on both Government and employers to ensure that our skills develop and adapt to the demands of a changing work environment.
Each successive generation has been richer than the last with real earnings doubling over the last 40 years. Unless the economy faces prolonged crisis, future generations can expect to live much more affluent lives than people in retirement today, across their lives before and after retirement. We believe that the increasing life expectancy is to be celebrated not feared, but we need to start the planning as individuals and a nation now.