LONDON – All over the world, people are living longer. That trend is set to continue. Indeed, life expectancy in OECD countries will increase by more than three years between now and 2050. This is on top of large increases in life expectancy already seen: in the United Kingdom, public-service pensioners who stop working at 60 can expect to spend about 40-45% of their adult lives in retirement, compared to about one-third for such pensioners in the 1980’s.
While these developments should no doubt be celebrated, governments, companies, and individuals around the world are tackling the biggest problem that comes with increased life expectancy: growing costs.
Last year, I accepted the UK government’s invitation to undertake a review of public-service pensions. From the beginning, I was mindful of the complexity, sensitivity, and importance of this issue to our economy and society. More than 12 million people in the UK are dependent in some way on public-service pensions for their retirement income. These pensions are a vital part of Britain’s national savings infrastructure.
My role was to find a way to sustain high-quality pensions that could set a high standard of fairness and adequacy, but that could also remain affordable to taxpayers – who, after all, pay the lion’s share of the costs of public-service pensions. Balancing these objectives remains the key challenge: public-service pensions must not become an unsustainable burden on public finances and the wider economy, but they must also deliver decent incomes that minimize the need for retired public-service workers to rely on state welfare benefits.