Select Committee on Economic Affairs Fourth Report


CHAPTER 11: CONCLUSIONS AND RECOMMENDATIONS

The future impact of immigration on population ageing

11.1. Although net immigration will tend, in the short run, to increase the relative proportion of younger persons within the population, it is neither appropriate nor feasible to attempt to counter the trend towards a more aged society in the United Kingdom through a manipulation of immigration policy (paragraph 2.17).

Reliability of population projections

11.2. The Government should, when publishing long-range population projections, or pension or other expenditure projections which incorporate population projections, always report the "funnel of doubt" created by the variance between high and low assumptions about mortality and other key demographic variables (paragraph 2.24).

Ageing and aggregate labour productivity

11.3. Population ageing does not pose a threat to the continued prosperity and growth of the United Kingdom economy; in this sense, therefore, there is no looming "crisis" of population ageing in the United Kingdom (paragraph 3.7).

11.4. This does not mean that the future growth of the economy is in any sense guaranteed; that depends on how we manage our economic resources. A failure, for example, to sustain historic rates of technological progress and productivity growth might drastically reduce future growth rates below those projected here. We conclude, however, that such risks exist independently of any demographic pressures on the economy (paragraph 3.8).

Ageing, inflation, saving and capital accumulation

11.5. Population ageing may affect savings, interest rates and capital accumulation, but its effect is likely to be small relative to the large range of other economic and political factors which determine the course of these economic aggregates (paragraph 3.18).

Participation rates below pension age

11.6. Official projections of future age-specific labour force participation rates are inconsistent with the Government's stated objectives and policy intentions of increasing the employment rates of older people (paragraph 4.12).

11.7. The Government should pay full attention to the need for their labour force projections and policy objectives to be consistent and compatible with each other, bearing in mind that each interacts with the other (paragraph 4.14).

Participation rates above state pension age

11.8. The Government should formally review the state pension age every five years in the light of trends in life expectancy beyond age 65, and in the light of their own desire to increase participation rates at older ages. Our own judgment is that the state pension age should be raised (paragraph 4.21).

Diversity in patterns of participation: regional effects

11.9. The Government should incorporate explicit targets with respect to older age employment in their Regional Economic Strategies and in the priorities they set for Regional Development Agencies (paragraph 4.27).

Diversity in patterns of participation: the impact of ethnicity

11.10. As part of the Government's evolving strategy for improving the position of ethnic minorities in the labour market, particular attention should be paid to the "double disadvantage" of age and ethnicity encountered by members of ethnic minorities aged over 50 (paragraph 4.32).

Explanations of early retirement: supply and demand

11.11. The Government should commission further research and analysis into economic inactivity among persons aged 50+, in order to produce a clear basis of evidence on which to build policies to promote higher rates of labour force participation among older persons (paragraph 4.47).

Age and work capacity: the impact of health status

11.12. The Government, employer and labour organisations should collect information and disseminate "best practice" guidelines on ways in which jobs and workplaces can be redesigned to facilitate the employment of older workers who have activity-limiting health status (paragraph 5.7).

11.13. Employers should actively evaluate and instigate the redesign of job tasks and workplaces in order to maximise the opportunity for retention and recruitment of older workers (paragraph 5.8).

Age and work capacity: the impact of education and skills

11.14. The Government and employers should work together to develop mechanisms to promote equal access to workplace training and life-long learning for workers regardless of their age (paragraph 5.17).

The relationship between age and job performance

11.15. We believe it is essential to improve knowledge of the relationship between individual age and worker productivity in order to provide a sound foundation for evidence-based policy. We therefore recommend that the Government commission research on the relationship between individual age and worker productivity in order to strengthen the evidential base for future policy initiatives in the area of older age employment (paragraph 5.26).

The extent of age discrimination

11.16. We conclude from the evidence available that there exists a significant degree of age discrimination in employment, and that this discrimination occurs throughout the economy and in both public and private sectors. (paragraph 6.14)

11.17. Few employers operate overtly ageist recruitment and retention policies (except in so far as they use fixed retirement ages). Age discrimination is frequently the unconscious outcome of an employer's more general human resource management policy and procedure (paragraph 6.15).

11.18. Ageism in public appointments, whether directed against those considered too old or too young, should be brought to an end, and an explicit commitment to age diversity in public appointments should be made by the Government and by all sponsoring Departments. We believe that this can best be achieved by ensuring that the process of appointment to any public body complies with the terms of the forthcoming legislation on age discrimination in employment, even in those cases in which such appointments do not constitute formal employment (paragraph 6.24).

11.19. The Commissioner for Public Appointments should be given statutory authority to seek out cases of ageism in public appointment procedures, and should also have powers which would lead to the diminution and eventual eradication of ageism (paragraph 6.25).

11.20. In relation to ageism, the remit of the Commissioner for Public Appointments should be extended to include appointments to those publicly funded bodies which currently or prospectively lie outside this remit (paragraph 6.27).

The legislative environment

11.21. The Government should be as explicit as possible in providing illustrations of the circumstances in which exceptional treatment may be justified, in order to provide the clearest possible guidance to both employers and workers (paragraph 6.34).

11.22. In order to minimise the cost to all parties of disputes relating to age discrimination, we recommend that the Government should incorporate in the forthcoming legislation on age discrimination the option of rapid and low-cost arbitration of disputes (paragraph 6.41).

11.23. The Government should not permit the continued use of a normal retirement age by employers, whether at age 65 or 70 or 75, unless the employer can provide a reasoned and objective justification for the use of age rather than performance criteria in the determination of employability. The Government should set an example of good practice by explicitly removing upper age limits in all public-sector employment in advance of the implementation of the forthcoming legislation on age discrimination (paragraph 6.43).

11.24. A move from age-based to competency-based criteria for recruitment, promotion and retirement will require a profound cultural shift on the part of both workers and employers. Long-established conventions about seniority-based promotion and pay will have to be challenged, employers will have to operate transparent and justifiable personnel policies, and employees will have to accept regular performance monitoring and assessment (paragraph 6.46).

11.25. As soon as the draft legislation on age discrimination is in place, the Government, in conjunction with both employer and worker organisations, should embark on a major campaign to raise awareness of the impending legislation, and of its likely effects (paragraph 6.48).

11.26. Just as legislation is now scrutinised for possible infringements of, for example, human rights, it should become routine for such scrutiny to cover the issue of age diversity, and for Ministers to certify that policy and legislation do not contain an ageist element (paragraph 6.49).

Consumption

11.27. The restriction of student loans to people below the age of 54 is blatant discrimination (paragraph 7.10).

11.28. The Department for Education and Skills should explain why age discrimination exists in the provision of student loans (paragraph 7.11).

Women

11.29. The contribution basis of the basic state pension acts as a significant barrier to the acquisition by women of full state pension entitlements (paragraph 8.7).

11.30. The basic state pension should be paid on the basis of citizenship rather than contribution record (paragraph 8.10).

Opportunities for private provision for retirement

11.31. In order to strengthen consumer confidence in equity release products, we recommend that all such products be brought within the FSA's regulatory jurisdiction as soon as is practicable (paragraph 9.4)

11.32. The Government should consider phasing out over time the tax-free lump sum (paragraph 9.9).

11.33. The Government should set an example by explicitly including information on the value of employer pension contributions in pay slips and in recruitment material for all public-sector jobs. We further recommend that a timetable be established for extending this practice to private-sector employment (paragraph 9.16).

11.34. The Government's policy goal of encouraging the delivery of more financial advice to individuals via the workplace is to a significant degree frustrated by the Government's policy goal of ensuring that financial advice is provided according to FSA rules (paragraph 9.19).

11.35. The Government, in co-operation with the FSA, should take action to resolve this conflict of policy goals in order to facilitate the provision of financial advice by employers and make clear the basis on which employers may provide advice, without lowering standards (paragraph 9.20).

11.36. We believe that there is a role for Government in providing a simple, secure and guaranteed long-term savings instrument which can be used by lower- income individuals who do not wish to expose themselves to the costs and risks involved in purchasing a commercial pension product. The Government should provide such a product, in the form of a pensions bond with a real rate of return linked to the economy-wide growth rate and administered by National Savings (paragraph 9.25).

11.37. A general extension of compulsion in pension savings should be avoided. However, that requires the Government to take action to provide a higher minimum state pension (paragraph 9.32).

Uncertainty and private pensions

11.38. The Government should explore with the voluntary sector and the financial services industry the possibility of developing a national financial advice network for low-income individuals (paragraph 9.38).

11.39. The proposed reform to the regulatory and tax environment of occupational pensions will come too late to reverse, or even stem, the tide of closure of defined benefit pension schemes (paragraph 9.42).

11.40. The closure of defined benefit pension schemes seems to be associated with a reduction in overall pension savings, which will have the effect of reducing the value of future pension entitlements (paragraph 9.44).

Complexity and uncertainty

11.41. The state pension system is too complex to function effectively, and the Government have taken insufficient notice of widespread concern about this complexity in their formulation of pensions policy (paragraph 10.6).

Purpose

11.42. The Government should produce a clear set of pension performance objectives which include indicators of the outputs of the pension system (present and expected future pensioner income) as well as the inputs to the system (the scale and source of pension finance). The Government's success in meeting these objectives should be regularly monitored and published (paragraph 10.13).

11.43. The Government should provide an explanation of the rationale for the continuation of age-related benefits such as subsidised travel (paragraph 10.15).

Means testing and public pensions

11.44. The Government's heavy and growing reliance on means testing the pensioner population is regrettable because it:

  • unduly penalises current pensioners who have struggled hard to provide a small private income for themselves in retirement
  • sends a clear signal to many current workers that it is not in their interests to save for their own old age
  • is unfair to tax some of the poorest members of our society at marginal rates as high as or higher than those imposed on the rich (paragraph 10.25)

11.45. As a top priority, the Government should consider introducing a non-means-tested state pension paid on the basis of citizenship to all persons of pension age. We believe that the provision of this baseline state pension is a necessary element for the development of a more extensive system of voluntary pension saving in the United Kingdom (paragraph 10.28).

11.46. The Government should expeditiously develop a fully costed proposal for the payment of the basic state pension at the level of the minimum income guarantee for all pensioners aged 80 and above (paragraph 10.31).

The concept of a "pensions crisis"

11.47. In order to increase the level of consensus associated with long-run pension planning, the Government should establish an independent authority to monitor, undertake research and make recommendations on pensions policy (paragraph 10.42).


 
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