The end of retirement as we know it?

“The real pension crisis has not happened though it is rolling towards us with horrible inevitability. The real pension crisis comes over the next decades when people expect to retire and find that their new-style defined contribution is worth a pittance.” The Pinch, David Willetts 2010

The basic premise of David Willetts’ book The Pinch is that the “baby boomers took their children’s future”. He charges that we, the boomer generation, “have concentrated wealth in the hands of [our] own generation” to the disadvantage of our children on whom we are piling “heavy burdens” which they will have to deal with.

Whilst there is a bit too much blame apportionment for my taste in Willetts’ book it is thought-provoking and well-researched and written. In particular he is dead right about pensions – as the quote at the head of this article shows – but he misses a bit the demographic and social changes that are already underway for the 65 plus age group and which will set the tone for the next generation as well. The baby boomers are mainly the immediate post-war generation that grew up at a time when the welfare state grew, as did the national wealth (in real terms) and during which both public and private sector employers were obliged to provide their employees with a pension offer – and a generous one at that. When I say ‘were obliged’ I do not mean that the law required employers to make pension provisions – what I do mean is that it was the norm to do so. In the main a boomer like me reaching the age of 65 in the last few years should be financially secure in retirement. Which, of course, was the original intent of the schemes of which we are members. We are getting what we are entitled to – no more and no less!

The post-war pensions construct was based on some immutable rules - or so they seemed at the time. We all retired at around 65. Once we retired we stopped work. Our retirement would last 10 years or so and then we would, as a generation, begin to fade away. Our bad habits, particularly our addiction to nicotine, would ensure that our later years would not be especially healthy and our longevity would be circumscribed. Our occupational pensions, index-linked and final salary based, supplemented by a state pension, would ensure in the main that we were neither a burden on the state nor on our families (there are exceptions to this of course). This construct has pretty much vanished and indeed never really applied to the baby boomers at all! So now and for the future a new paradigm is necessary to cover us (to some extent) and successive generations (certainly) in the later decades of our lives. As David Willetts rightly says, although a defined benefit pension provides most of us in our 60s and beyond with security this will not be the case for later generations whose defined contribution pensions will only be part of the answer. It is this which places DC auto-enrolment in perspective. Even if it succeeds in its goals, it cannot match the security offered by a DB final salary scheme.

So what is the new paradigm? Firstly the idea of an immutable ‘retirement date’ will vanish. The ringing of a date on a calendar, say, 20 years hence and knowing that that will be the day when you are presented with a clock has gone. Indeed just as the ‘one employer for life’ norm has virtually disappeared (in the private sector at least) so has the idea that there is a date before which you worked 43 hours a week and after which you work zero. Flexible work patterns, pretty much throughout a career, are now the norm, not the exception, and surely this will also extend into what used to be called the ‘years of retirement’. Under this new paradigm the very idea of an ‘active retirement’ would be passé because none of us would be retiring (under the old definition) at all! We would just gradually change what we do, how we do it, and how much of it we do - and we would have to cope with the changes to the work/leisure balance that implies. Such changes, of course, would have fundamental implications for the nature of our welfare state – not least non-means-tested universal benefits like the state pension. These might disappear as the state concentrates more on producing support against need rather than general entitlements. Now that really does concentrate the mind!

Paddy Briggs is a Member Nominated Trustee Director of the Shell Contributory Pension Fund. He writes in a personal capacity and the views he expresses are his own

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