UK – The Bank of England says there are more workers of retirement age in the workforce – driven in part by concerns about pensions.
The bank said that the overall participation rate has risen since the mid-1990s, partly due to cyclical effects, but also due to structural factors such as labour market reforms.
It said in its latest inflation report: “Participation has also risen among people of retirement age. Part of that is likely to be cyclical, but some of it could reflect concerns about pensions.” It did not provide statistics.
It also said that non-wage compensation rose by 2.6% in the fourth quarter of 2003, and was 12% higher than a year earlier. “That was almost entirely due to a further sharp increase in contributions to private pension funds.”
It said that while the Office of National Statistics says some of the rise in pension contributions may be overstated, part of the rise was “likely to be genuine, and may reflect attempts to reduce pension shortfalls associated with earlier equity price declines”.
The BOE added: “While these contributions are a cost for firms, they are not part of the marginal cost of production - the cost of producing an additional unit of output.”
“And as it is the marginal cost that is important for pricing decisions, the attempts to reduce the pension deficit are not likely to put significant upward pressure on prices.
“Pension contributions may also have risen due to other factors, however, such as increasing life expectancy or falling annuity rates.
“These could affect the marginal cost of production if workers manage to bargain for higher overall compensation. But they may just imply weaker earnings growth as the form of compensation is switched.”
It added that the “persistence” of the UK current account deficit suggested deep-seated structural factors such as demographic structure, productivity, savings and borrowing behaviour.