Friday, February 29, 2008

Living Too Long

Further to this week's posts on public sector pensions, we've refreshed our memory on life expectancy. Because of course, it's the increase in lifespans that lies at the heart of our looming pensions crisis.

When Lloyd George introduced his Old Age Pension in 1908, it was means tested, and he set pension age at the traditional three score and ten. Yes, that's right - five years beyond the current 65. That was pretty cheap because at that time anyone who lived to 70 was exceptionally lucky (or unlucky, depending on how you look at it). In 1908, average life expectancy began with a 4.

Fast forward to the 40s when Beveridge produced his famous report. Life expectancy had increased and now began with a 6. Yet despite this, the pension age had been reduced to 65 for men and 60 for women.

Fast forward again to today. Life expectancy now begins with an 8 (for women at least). And for those born today average life expectancy is officially put at 88.1 years for a boy and 91.5 years for a girl.

So just to recap. When the Goat invented OAPs in 1908 the average punter died more than twenty years before being able to claim. Pretty cheap. Even when Beveridge did his report, death before payday was still highly likely. So still manageable.

But now, most of us will get at least 15 years of pension. And even though the state pension age will increase to 68 by 2044, with average life expectancy already heading for 90, that will still mean more than two decades of payout.

Clearly the money doesn't add up; it's a total non-starter.

So there are only two possible solutions. Either we increase the pension age much further, and cut the pension rates even more. Or... umm... ahhh... well, we could adopt that other solution.

PS Of course, Lloyd George ripped off his Old Age Pension from wily old Bismarck, who'd intoduced them 20 years earlier, complete with a pension age of 70 and a life expectancy beginning with 4. In fact Liberal LG was always highly impressed by German Big Government, as we can see in this chilling 1936 home vid:

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