The changing demographics of our society present policymakers with serious challenges, as an ageing population puts already overburdened public services under ever more intense pressure. This has raised questions about whether our current welfare state and its underlying principles – dating back to William Beveridge’s report in the aftermath of the Second World War – remain fit for purpose today, since this model was devised at a time when social demographics looked very different. But if we are to revisit these principles and usher in policy changes, how can this be done fairly? In this Q&A, Vince Cable considers these dilemmas in light of current policy debates around the retirement age.

Earlier this year we witnessed widespread protests in France in response to proposals to push back the retirement age from 62 to 64. Meanwhile, here in the UK, the retirement age is 66 and likely to rise further. How do you view this difference in public attitudes.  

Vince Cable: There is an interesting contrast. Britain’s retirement age is now 66 for men and women, it’s been raised over time and raised dramatically for women especially. It is due to go up to 67 in four years’ time. There is currently a big debate in the Treasury as to when it will go up further – so it is a very live issue.

The basic principle is that your years of pension entitlement should reflect life expectancy. But with this change you’re still withdrawing something people feel they’re entitled to – so while it may be rational decision-making, it is still quite painful. So it’s an interesting question as to why the British have passively accepted it whereas the French have rioted over much smaller reforms. Women here had their pension age raised from 60 to 66 in quite short order – that’s quite a hit for the women affected – they lost a lot in state pension, and risked falling into pensioner poverty as working age benefits are particularly poor. There were some polite demonstrations in response but to be frank this has never been a big public issue.

How do you view the current government’s approach to retirement and its budgetary policies in this area?

One of the interesting issues, which has never really been addressed, is why I as an earning pensioner – I’m now 80 – don’t pay any national insurance whereas young people do. You could say this is an incentive to work. But in terms of justice between generations it’s highly unfair.

We sometimes hear workforce issues framed as a choice between higher levels of immigration or bringing people out of early retirement to get them back into labour market. Is this a useful way of looking at it?  

I don’t have any problem with relatively high levels of immigration and all the evidence suggests these tend to be younger people who are more likely to work than not, and therefore pay taxes. Usually, they are people who are more ambitious, willing to work longer, more productive, and are filling gaps in the labour market which British people are not trained or willing to do. So in that sense it’s complimentary rather than competitive. All of that is positive but the basic problem is that immigrants themselves grow old, so the process has to be constantly renewed to change the economics of demography.

How are newer forms and patterns of work – such as precarious contracts, the gig economy, or a four-day week – impacting the situation, and what do these developments tell us about the direction of travel when it comes to the way people work?

You have to start with more flexibility. One of the things we did in coalition was to abolish the default age of retirement, which means you’re not forced to take a gold watch at 66 if you don’t want to. Second we brought in legislation on the right to request flexible working, which can be turned down if there are good business reasons. Now the Labour Party is proposing to make it more binding – it’s an interesting question.

Then there are zero-hours contracts. My instincts were to ban them but when we did a survey we found that among older people, students, and single mums, zero-hours contracts were popular because you were not bound into a contractual obligation to turn up to work. So we didn’t ban them. All those things in different ways contribute to flexibility. We also need to bear in mind that lots of people are just not able to take advantage of greater flexibility because they lack skills like basic literacy and numeracy, so it is not just about permitting people to work but also improving adult education.

How can we have a more just system?

[French President Emmanuel] Macron ran into problems because he hadn’t thought about this – if you’ve been working since 16 at a hard manual job, that’s very different than if you are a middle-class person in a white-collar job. In theory, one should be able to say that everyone should have the same working life, whether you’re a working-class person starting after school at 16 or a person with a PhD going on to a profession, but that would require you to compute individual working lives with all the interruptions you get from sickness and unemployment. A just approach would be to have the equalisation of working lives as the basis for calculating pension entitlements – an extraordinarily difficult thing to do, but if you’re taking about fairness and people’s reactions to these decisions – that’s clearly a factor.

A just approach would be to have the equalisation of working lives as the basis for calculating pension entitlements

Is there a failure on behalf of government to connect different policy areas – such as finding solutions to the housing crisis, which many younger people today say is preventing them from being able to save for their retirement?

On housing it is more an issue of intergenerational unfairness. We support pensioners through state pensions but people of pension age normally have property, and property increases in value faster than the growth of the economy. So older people are getting wealthier, holding on to their property and blocking access to younger people onto the housing market

But it’s true that government operates in a disjointed way, which is why I think there is a strong argument for revisiting the Beveridge principles – because that was an attempt to deal with these things in a holistic way.

Do the government’s current policies reflect a failure to understand the preferences and priorities of the younger generation today?

Policymakers have to operate by evidence not hearsay and prejudice, and far too much politics is driven by “the last person I spoke to”. My experience with zero-hours contracts was a salutary one in that respect. Trade unions were telling us one thing, but officials said we should carry out a sound evidence survey before changing legislation. The evidence gathered told us what we didn’t expect to hear, and that’s the way policy should proceed.

You can watch Vince Cable discussing these issues further in this recording of the LSE Festival event Rethinking Retirement: public policies to support life changes

All articles posted on this blog give the views of the author(s), and not the position of LSE British Politics and Policy, nor of the London School of Economics and Political Science.

Image credit: Photo by Grace Chapman