International Longevity Centre - UK

Anne-Martin Matthews of the Institute of Aging at the University of British Colombia delivered a key note address at the British Society of Gerontology conference on the issue of how care workers, care recipients and their relatives experience and organise time as a function of home care. The address was based on a study of 180 care workers, 83 recipients and 56 relatives of recipients in Canada. 

She argued that care practice witnesses the compression of time. Things like travelling, irrational scheduling, the impact of frailty, and the need to train new workers all help to minimise the time available to deliver care. Workers and clients have developed a series of ‘time tactics’ to overcome compression, such as adapting the home or behaviour, clients preparing for a care visit in advance, enlisting the help of relatives or recipients themselves in delivering care, prioritising tasks, or simply accepting the reality of time compression. 

Yet while individuals can adapt to time constraints, it is clear that vital duties are not being performed. Workers often report that they do have enough time to carry out their allocated tasks – but they do not have time to undertake the less tangible aspects of the care experience, such as chatting to the recipient, and having a cup of tea with them. Developing such relationships would clearly improve the effectiveness of care, but also help to combat loneliness and isolation among those with care needs. 

Part of the answer is more time. But we also need less time, in the sense that the care experience should not be organised around time, but rather the actual tasks the individuals need to be undertaken on their behalf. Current forms of time management depersonalise the care experience.    

Craig Berry

In his Emergency Budget earlier this month, Chancellor George Osborne hinted at the impact of an ageing society on public finances. Whilst his speech wasn’t explicit about demographic change being a cause of some of the fiscal challenges we face, he described the cost of public service pensions being one of the greatest long term pressures facing our nation’s finances.

Mr Osbourne argued out that “by 2015-16 we will be spending over £10 billion a year simply to meet the gap between pension contributions and payments to the unfunded pensions they support”. At the same time, he announced plans to accelerate the increase in the State Pension Age to 66.

An “attack” on public sector pensions has long been anticipated. And behind the scenes, it has been clear for a number of years that the State Pension Age would increase quicker than currently planned.

But the impact of demographic change to public finances should not be new to politicians. Last October, the European Commission published its 2009 sustainability index (1). The report found that the public finances of the UK, Spain and 10 other European Union countries were at long-term high risk (2) and that “the cost of an ageing population is expected to “dwarf” the impact of the current financial crisis many times over”.

It is not all bad news. The Commission reported the success of several countries in getting their finances under control. They argued that “Bulgaria, Denmark, Estonia, Finland and Sweden have relatively stronger budgetary positions and have undertaken comprehensive budgetary reforms in recent years.(1)” And since the Sustainability Index was published, we have begun to see Governments across Europe starting to increase pension age (often against vigorous domestic opposition).

An ageing society is likely to cost the state more money. But it is also a problem which is easier to put aside as one for “tomorrow”. The impact of a future ageing population on public finances will go way beyond the cost of pensions to the cost of health, care and other welfare. Meanwhile, the impact of this trend on intergenerational fairness should not be dismissed.

So in the context of saving money in an ageing society, the Chancellor is likely to find himself running in order to stand still.

There will also be some difficult questions about spending on older people which will undoubtedly arise over the next few years. Should we increase the age of eligibility for other “benefits” such as the “free bus pass” or the winter fuel allowance for example? Should the “benefits” be means tested? Or should we, for example, ask people who want to benefit the free bus to pay a small registration fee (say £20) to cover some of the costs? These are difficult questions but ones which won’t go away.

Part of the solution has to be to take a holistic and strategic look at an ageing society. For example, Can we find innovative ways of paying for preventative healthcare? Can we incentivise people to stay active for longer? Can we deliver more and better jobs for those close to (and beyond) the State Pension Age? Or could we offer a flexible state pension where individuals could choose to draw down a smaller state pension earlier in retirement in return for a more generous one later on?.

In his speech Mr Osbourne argued that “Past prudence was an excuse for future irresponsibility…. Our fiscal mandate will be forward-looking.”  One of the biggest challenges for the next five or ten years will be to work out how to address the fiscal challenge of demographic change. Sweeping the future cost of demographic change under the carpet would be very dangerous for current and future generations of pensioners.

David Sinclair
 

1)    http://ec.europa.eu/economy_finance/een/016/article_8891_en.htm
2)    http://myreader.co.uk/msg/129630153.aspx

The coalition government has announced that the state pension age (SPA) will rise to 66 for men by 2016, around ten years sooner than the previous government, which had proposed raising the SPA to 66 by 2024 and to 68 by 2046. The change goes against the grain of gender equality in the UK pensions system, and undermines Iain Duncan Smith’s commitment to link SPA to longevity increases. This move reintroduces a later male SPA, despite the fact that women live significantly longer than men (life expectancy is currently 77.4 years for men and 81.6 years for women).

The main challenge, however, is the discrepancy between life expectancy and healthy life expectancy. A lot of media coverage has today [1, 2] suggested that people could end up working into their 70s as a result of the proposed changes - the new administration also plan to scrap the default retirement age, which will no doubt be welcome by those who get forcibly retired at 65 when they would prefer to continue working. However, it is important to remember that although longevity has increased, life expectancy and years spent in good health (known as “healthy life years”) are not the same thing. The Marmott report on health inequalities in England published earlier on this year [3] highlighted the fact that around 75% of the population will not be healthy enough to work until the age of 68. Such figures are a clear argument in favour of more investment in preventative healthcare. The NHS has traditionally been a sickness service rather than a health service; perhaps now is the time to change this.

In addition, as my colleague Craig Berry points out in his paper on retirement [4] not only is ill-health a major factor for early retirement, but it one that is more likely to affect lower skilled workers, who tend to have less generous pension arrangements. The paper wonders what will happen to those who are forced to retire before the SPA because of ill health, but do not have access to private or personal pension income to tide them over until they receive their state pension.

Rebecca Taylor
 

[1] http://www.telegraph.co.uk/news/newstopics/politics/7850626/Pensions-shake-up-could-see-most-people-working-into-their-seventies.html
[2] http://news.bbc.co.uk/1/hi/politics/10398918.stm
[3] http://www.ucl.ac.uk/gheg/marmotreview
[4] http://www.ilcuk.org.uk/files/pdf_pdf_134.pdf
      

The latest edition of the European Journal of Population (1) explores the Economic Consequences of Low Fertility in Europe.

The Journal reports that fertility rates across Europe has declined significantly over the last 50 years. It is now the case that all European countries have fertility rates which are below the long term replacement rate. The average replacement rate in Europe is currently around 1.5 compared with a 2.1 replacement rate required to keep Europe’s population at its current levels.
Whilst migration has played a role in preventing population decline, many countries are likely to see population decline in the future.  (Bloom, Sousa-Poza)

The Journal notes that there seems to be little agreement on causes of low fertility. Academics talk of issues such as the increased labour force participation of women; delayed marriage; delayed childbearing and higher social and financial costs. The lack of child-care alongside rigid labour markets are blamed by others. (Bloom, Sousa-Poza)

But where there is agreement, is that Europe is heading towards a potential crisis of persistent low fertility. And such a picture is likely to impact on economic growth. (Bloom, Sousa-Poza)
Population growth has been a subject of concern for many years. It was as far back as 1798 that Malthus talked of population growth inevitably outstripping food supply and causing widespread suffering. Back then the world’s population was just 1 billion. Ehrlich predicted dire social environmental and economic consequences in 1968 (when the population was around 3 bn), an argument he reiterated in 2008 when the population crossed 6.5 billion. (Bloom, Sousa-Poza)

Whilst many argued (and still do) that population growth was bad to humanity and the economy, another view emerged that population growth would “stimulate human ingenuity and lead to rapid technological advancement and innovation”. This would lead to increases in food and living standards. (Bloom, Sousa-Poza)

A final more neutral view emerged in the 1980s, that there was no correlation between economic growth and population growth. (Bloom, Sousa-Poza)

The European Journal of Population highlights a number of new pieces of research which explore the relationship between economic growth and declining fertility.

One piece of research (Bloom, Canning, Fink and Finlay) notes that in the short run a fall in fertility rate reduces youth dependency and increases working age share, thus raising income per capita. But it goes on to say that significant drops in the working age population should be expected. It adds that substantial adjustments in labour force participation or migration policies are likely to be necessary and the “potential negative repercussions on the European Economy are large”. And Clark; Ogawa; Kondo and Matsukura find that public policies encouraging increased employment of women and people over 60 could partly offset the anticipated decline in employment.

Another piece (Lee and Mason) argues that lower fertility leads to higher per capita consumption whilst Zamac, Hallberg and Lindh look to the situation in Japan where total fertility is currently 1.3 per woman. A final piece by Bo Malmberg considers the correlation between population ageing and likely lower house price increases.

At ILC-UK we spend a lot of time exploring the impact of an ageing society on the economy. What this Journal highlights is the economic implications not just of increases in average population ages but those changes alongside a declining population.

The research strengthens the argument for a move towards more flexible working opportunities (for women and older workers) alongside a move towards “gradual retirement” (3).
A separate but closely related issue is of course that of the role of migration. But irrespective of its role, it is clear that Europe faces significant economic challenges ahead if we cannot find ways of facilitating a longer average working life.

David Sinclair

1) Special  Issue of the European  Journal of Population: “Economic Consequences of Low Fertility in Europe”. Springer. March  2010
2) The degree to which a population is replacing itself, based on the ratio of the number of female babies to the number of women of childbearing age
3) C. Berry (2010) ‘The future of retirement’, ILC-UK, available at http://www.ilcuk.org.uk/record.jsp?type=publication&ID=61

The week of the Glastonbury festival tends to coincide with Wimbledon. This year it sees a clash with the World Cup as well. This is also the time of the year when employer organisations express concern about how much money businesses will lose as a result of people taking a day off to enjoy the sun and sport.

And if it wasn’t for the emergency Budget we’d also be heading towards the ‘silly season’ and a story by Orange on the ‘Future of Festivals: Glastonbury’ predicting “Contact lenses that act as retinal projectors”, “‘grow your own’ fabrics”, and “tattoos that connect you to the internet” might have got more attention.

The Future of Festivals (1),explored how technology will change the face of music festivals.  It talked of renewable technology to deal with environmental and energy challenges ahead. It considered how new communications technology might improve the experience of festival goers.

But one major area of neglect was of the impact of the ageing society. The median age in the UK is currently around 38. By 2050 it is expected to be about 49 across the EU. In other words, the festival audience will almost certainly get older.

In 1997, Festival organiser, Michael Eavis expressed concern about the lack of younger people coming to the festival. He said that they were “trying to get the youngsters back – the 16, 17 and 18 year olds. We’re attracting a lot more people in their 30s and 40s and need to get the Radio 1 and NME crowd back in”. He went on to note that the 30 and 40 year olds change the character of the event. “The demographic is changing and it’s slightly worrying. We might lose the fascination the show has for the public” (2).

The reason blamed by Eavis for the ageing audience wasn’t that we had an ageing society but because people in their 30s and 40s had faster internet connections and were more likely to be able to secure a ticket. And the solution was to ensure a return to ticket sales by telephone. (Although the relatively high ticket prices -£185 this year- arguably remain a bigger part of the reason why younger people may be not attending).

But of course its not just the audience which are likely to get older -  so are the acts. It is a long time since Paul McCartney sang of “losing my hair, many years from now” but it is a truism that some of the biggest acts across the world have achieved significant longevity. “The headline acts are Gorillaz, Muse and Stevie Wonder. This represents an ageing Mojo editor’s view of what Good Music is. The line-up is designed to satisfy the thirtysomething, fortysomething, and even geriatric attendees.” argued the Spectator on Glastonbury recently (3).

What does all this mean? I remember a prominent environmentalist arguing (about 15 years ago) that it was only when Hollywood producers, musicians and artists turned their attention to environmental concerns, that significant policy interest would follow. Arguably that has now happened.

A couple of weeks ago, Tom Robinson held a “Glad to be Grey” birthday concert in London.  The generation of older musicians may well have a major role to play in embracing ageing and raising the profile of the challenges faced by an ageing society.

Perhaps one of the reasons why The Future of Festivals didn’t raise the profile of the ageing society was a fear of the media reaction. The festival scene is portrayed youthful and young and therefore stories about an ageing audience may not have seemed appropriate to the PR people.   But ageing is a challenge which will not go away and Glastonbury and other festivals must seriously research, consider and address the long term impact of an ageing society on their activities.

See you in the mud.

David Sinclair
1)    http://newsroom.orange.co.uk/2010/06/14/tomorrow-comes-today-orange-commission-the-future-laboratory-to-create-the-future-of-festivals-glastonbury-2050-report/
2)    http://www.metro.co.uk/showbiz/56921-glastonbury-is-too-middle-class-says-eavis.
3)    http://newstaging.spectator.widearea.co.uk/the-magazine/features/6070083/glastonbury-is-for-middleaged-masochists.thtml

This is Money reported this week that purchased life annuities (PLAs) are on their way back[1]. Concerned about low interest rates, many savers find that buying an annuity, even if their capital is not held as pensions saving, represents a viable way to secure a decent income in retirement. Interest rates on cash savings are an important framing point for advisers and consumers. The longer that rates stay low, the more attractive returns on PLAs will appear. ILC-UK has been making the case for PLAs for a while. We published a report on the issue, authored by Jackie Wells, in October 2009, which argued that around 1.3 million people could benefit from a PLA – despite the fact that less than 160,000 PLAs are in force, and that new business in 2008 amounted to less than 1000 sales[2]. If the report of increased sales is reflected across the market, interest in PLAs is now growing. With better information and advice, PLAs could be a viable option for many more people. Another ILC-UK report on the future of retirement, published today, argues that we need as much flexibility as possible in the financial products available to people approaching retirement[3]. Clearly, PLAs could be a vital part of this landscape going forward, enabling people with regular savings to purchase annuities. 

This development is especially interesting given the new government’s intention to end compulsory annuitisation at 75. While their motives are understandable, it must be upheld that annuities are fundamentally a good product for most people. The potential of PLAs demonstrates this. So whatever policy change results, the government must ensure that providers remain able to provide a wide range of financial products to older people. 

Craig Berry References 1. S. Womack (2010), ‘A legal way for savers to get 14% interest’, This is Money, 13 June 2010, available at http://www.thisismoney.co.uk/savings-and-banking/article.html?in_article_id=506158&in_page_id=7&ct=5 

2. J. Wells (2009) ‘Time to annuitise?’, ILC-UK. available at http://www.ilcuk.org.uk/record.jsp?type=publication&ID=48 

3. C. Berry (2010) ‘The future of retirement’, ILC-UK, available at http://www.ilcuk.org.uk/record.jsp?type=publication&ID=61 

4. BBC (2010) ‘Policy-by-policy: the coalition government’s plan’, 21 May 2010, available at http://news.bbc.co.uk/1/hi/uk_politics/8693832.stm   

New figures obtained by ILC-UK from NHBC (National House-Building Council) reveal that the private sector started building 3,235 retirement/sheltered homes in 2006 (England). This figure fell dramatically to 2,602 in 2007, 1,499 in 2008 and just 313 in 2009. The statistics also reveal that only 4 regions in 2009 saw new build – East Midlands (52), Eastern (26), South West (114) and South East (121).

There are of course other builders of specialist homes (RSL’s/and those registered with other warranty providers) but these figures do highlight a very worrying trend over recent years and a serious mismatch between supply and increasing demand in this sector.

Of course the main reasons will be associated with the economic challenges of the past few years. Older people wanting to move to private retirement housing may have found it difficult to sell their homes for example, so developers stopped building new schemes whilst experiencing difficulties in selling existing stock. However, developers also cite the planning system as a major frustration and constraint on delivery.

It looks like we are turning a corner with providers such as McCarthy and Stone beginning to identify and buy sites for new homes over the next few years. But it will take a while (perhaps another 4 years) to get back to the 2006 levels of build.  And in the meantime, it looks like capital funding for publicly funded housing will be squeezed.

Clearly the private sector needs to be incentivized and supported to build more (and better) retirement housing to meet the needs of an ageing society. But perhaps at the same time, both local and national government need to look to the barriers to new build, consider how these can be removed and what extra support the sector should get. For example, a formal presumption in favour of planning applications for private specialist housing for older people would go a long way towards encouraging more developers into this market. It would also encourage greater innovation in design and increase the supply and choice of retirement housing for older owner-occupiers.

David Sinclair

A new report by Plum for Ofcom looks at “Assisted Living Technologies for Older and Disabled People in 2030”(1).

The report highlights the potential of technology not just in terms of telecare and telehealth but also in terms of supporting “wellness”, improving social interaction and helping older people work for longer.The report posits a future scenario of Moores law resulting in cheaper equipment; broadband becoming universally available; and a move away from specific products to mass market devices. Plum argue that this could reduce the cost of assisted living technologies significantly (10 fold), result in a growth in the number of technologies, and change the nature of industry from delivering boxes to providing software for mainstream products.

Whilst recognising the potential for technology to help improve the quality of life of older people (and reduce health and care costs), Plum highlight a number of challenges which could prevent this scenario from becoming a reality. How do we ensure the user retains control of their care?; How can we deliver low cost personalised services?; How can users make accurate assessment of their needs?; and How do we tackle the challenges of privacy and confidentiality?. Plum also highlight the very real fear of some that technologies could replace personal contact; that there is a need to balance the needs of users and carers; and that new technologies need to be designed in a way which is not stigmatising.

Plum point out that  digital exclusion remains a major barrier to take-up of the new technologies and points out that on historic trends it will take 33 years for 90% of over 75s to become internet users!

Amongst other things, the report calls for more information for older people; an ethical framework; better awareness of the potential of technology; and digital inclusion initiatives to be targeted at older people. It also points out that integrated electronic care records could help the market as could a review of the financial incentives for investment by NHS. And it proposes exploring the centralised purchasing of technologies.

All of the recommendations seem very sensible. But perhaps the main weakness of the report is the lack of targeting of the recommendations. No-one is asked to lead on the recommendations. As a result there is a real risk that this report sits on the Ofcom website alongside other similar reports on the sector.

Many of these issues aren’t new ones yet why haven’t we seen action before? Part of the problem is that there is no real pressure on government (or indeed industry/the voluntary sector) to tackle the challenges outlined.

Neither industry nor the voluntary sector (who mainly have their lobbing eyes narrowly focussed on the bigger issues of how to pay for care) has become an adequate advocate for new technology. It is not clear where the leadership should lie but if the optimistic scenario painted by Plum is to become a reality then those leaders must be found.

It’s great that Ofcom are interested in this area and will be interesting to see if they do have plans for pushing forward the recommendations. Let’s hope this report doesn’t just sit on the shelf.

David Sinclair

(1) http://www.ofcom.org.uk/research/technology/research/sectorstudies/assisted/ (2): To declare an interest, ILC-UK were interviewed as part of this research and participated in the scenario workshops)See ILC-UK papers/blogs on related issues

Simon Roberts The Fictions, Facts and Future of Older People and Technology http://www.ilcuk.org.uk/record.jsp?type=publication&ID=54

Building a National Care Service White Paper – Technology and Care http://blog.ilcuk.org.uk/2010/04/01/building-a-national-care-service-white-paper-%e2%80%93-technology-and-care/

Tackling Digital Exclusion: http://blog.ilcuk.org.uk/2009/09/24/tackling-digital-exclusion/  

AEGON UK and the Association of Independent Financial Advisers have come together to explore some of the behavioural nudges which could help move the UK towards a culture of saving.

“Saving Britain” (1) points out that until recently, initiatives to encourage saving have come through tax and regulation and assumed a rational consumer. But a combination of regulatory complexity and cost, alongside a consumer with a preference for consumption has meant that we are not saving as much as we should.

The report makes a number of recommendations including that we should move towards a culture of “save back” not “cash back“, that there is a need to build a savings culture in the young and there is a need for a new advice infrastructure.The report points to auto enrolment as an example of a move towards behavioural finance and notes that it highlights a change in the approach of Government.

Without a doubt behavioural economics could be used to help us save more. Despite the credit crunch it remains easier to borrow or spend than to save. And the credit industry have for many years used behavioural nudges to encourage us to borrow.

The new Government will undoubtedly be interested in this report and its arguments. David Cameron has expressed an interest in using behavioural economics to influence behaviour. But this report is arguably just a starting point for encouraging thinking in this area. Of course the responsibility for many of the solutions to encourage us to save have to lie with the savings industry (with a little help from Government to remove the “anti-nudges“). Industry need to research and pilot new approaches to influencing behaviour. Those companies who come up with the right nudges are likely to see a financial reward for their investment.

David Sinclair

(1) http://www.aegon.co.uk/media/press-releases/press-releases-2010/AIFA-and-AEGON-call-for-action-to-rebuild-Britains-savings-culture/index.html

The Government’s plan to end compulsory annuitisation at 75 (1) seems a fair one on the surface. How can it be fair that someone is forced to buy a product by a specific age. It is particularly of concern if at the time of your 75^th birthday, the stock markets are relatively low and you may get less money than your neighbour with similar pension savings who retired two years earlier. (That said, nobody is of course forced to annuitise on their 75^th birthday and everyone does have 20 years before that to choose an appropriate time to annuities.)

But ending compulsory annuitisation reinforces the message that annuities are a bad choice: “Pension savers will no longer be forced to spend their retirement funds on poor-value annuities at 75” argued The Times last week (2). For a long time the media has criticised annuities while the insurance industry has failed to communicate the benefits of these products.

Annuities are fundamentally a good product. And the 75 limit is an important nudge to force people to make decisions about their financial future.

And contrary to popular belief, they are not inherently bad value for money. Returns are based on several factors including the returns available from bonds and how long the industry thinks people will live for. The reality is that returns on all types of savings and investments are currently low and, moreover, we are living longer. We should therefore have to expect a smaller annual return for our pension pot. 

Of course, people worry that they will die before they get the benefit of the annuity (and of course some people will – that is how insurance works after all). But is that worse than running out of money in one’s 80s? Meanwhile, allowing people to duck out of annuitisation could actually reduce the benefit of mortality cross subsidy within the annuity pool.

Last October ILC-UK published a think piece by our Fellow, Jackie Wells, who argued that for these very reasons the insurance industry was missing a trick and not just be selling pension annuities but should be more actively promoting Purchased Life Annuities. (3)

While an end to compulsory annuitisation may sound uncontroversial and indeed popular, the Government could do worse than focus on some of the other issues facing annuitants. The impact of Solvency II (4), the problems facing the poorest pensioners with small or multiple pots, how we can much better promote the open market option to ensure people shop around to get a better deal, and how we can ensure that people have access to financial advice to support difficult financial decisions?. Perhaps we should look to behavioural economics to identify nudges which make shopping around easier.

Age UK have identified recommendations to improve the annuity market, recommendations which ILC-UK have supported in our own position statement on pensions (5). It is clear that the annuity policy environment needs reform.

But annuities also need supporters. We need a much more positive campaign on the benefits of annuities. We also need much higher awareness (alongside more research) on the risks of the alternatives.

With a growth in the number of DC pension pots over the next few years, these issues are of pressing concern. Individuals have to make complicated decisions about their long term finances and unless they are aware of the long term risks of those decisions, there is a risk that we see many more people running out of money before their death.

David Sinclair

(1)  http://www.ifaonline.co.uk/ifaonline/news/1636176/govt-scrap-compulsory-annuitisation-75-retirement-age-review
(2)  http://www.timesonline.co.uk/tol/money/pensions/article7127394.ece
(3)  http://www.ilcuk.org.uk/files/pdf_pdf_99.pdf
(4)  http://blog.ilcuk.org.uk/2010/05/04/solvency-ii-may-endanger-retirement-outcomes-for-future-pensioners/
(5)  http://www.ilcuk.org.uk/files/pdf_pdf_128.pdf