UK - Britain does not face a pensions crisis, nor does it have a savings gap that needs closing, a business-led think tank has said.
A report from Tomorrow’s Company, a London-based research and education charity, has challenged the assumption that a shrinking workforce and a growing number of retired will create a crisis in pensions provision.
The report is the work of a research group that includes Jeremy Goford, former president of the UK’s Institute of Actuaries.
The group said that the economic measure that is traditionally used to assess dependency ratios – the ratio of persons aged 65 and over to the number of persons of working age – overstates the extent of any future pensions crisis.
“This is neither the most useful nor the most relevant measure for the present debate. It ignores the fact that some 9m people of working age in the UK do not work.”
It said a more relevant ratio is the ‘economic support ratio’, which relates the number of people who are working to the numbers not working – that is, children below the age of 16, adults of working age who are not working, and non-working people over the state pension age of 65.
If this ratio is used, the change between 2003 and 2041 is reduced from a fall of 42% to a fall of 13%.
The report also challenged the assumption that there is a quantifiable savings gap and that the solution to the ageing of the population is more saving
The Association of British Insurers has estimated the UK’s annual savings gap at £27bn (€40bn). US investment bank Goldman Sachs has estimated the gap at £50bn.
The Tomorrow’s Company report commented: “The UK has already more wealth in the form of pension savings than the rest of Europe put together. The problem is that it is unevenly distributed.”
Rising productivity rather than personal savings is the solution, the report suggested.
“The main factor affecting our ability to afford an ageing population is the impact of rising productivity,” it said. “More than anything else rising productivity explains the paradox that ageing societies have simultaneously become wealthier.”
It estimated that with 1.75% productivity growth a year, the average UK worker will be twice as productive as today by 2045. The production of new value and resources would double, while the number of those aged over 64 would grow by less than half.
“Our ability to manage the implications of an ageing population based on a change in the total economic support ratio of 7% should not be an issue,” the report concluded.