In Britain the state provides three supports for ageing: pensions, social care, and health care. Slowly but surely health care is eating other public services, including social care, which with an aging population and the rise of multimorbidity becomes just as important for “health” as health care.
Expenditure on health care in Britain has risen from 25% of public expenditure to 40% in two to three decades. The main loser has been defence, but many other sectors have lost substantially. The increase has not been driven by aging, but more by the increasing range of what health care can offer. The expenditure is largely beyond the control of government. Rationing of care is mostly implicit rather than explicit, and there is no appetite for reform.
These broad statements came from Paul Johnson, the Director of the Institute for Fiscal Studies, who is heard regularly in the British media commenting on public finances and was described at the meeting as “a voice of sanity in an increasingly insane world.” He was speaking at the UK-Canada Colloquium, an annual gathering of senior people from the two countries to discuss particular topics. This year’s topic was healthy aging, and in addition to talking about health Johnson talked as well about pensions and social care.
Overall health care accounts for about 7% of the economy, the proportion having doubled over 40-50 years, pensions for 5%, and social care for 1%.
For the first time in history, the income of those over pension age, which has risen fast, is the same as that of those below pension age. Forty years ago pensioners were among the poorest, now they are the least likely to be poor. The increased income of those over pension age has come mostly from defined benefit pensions, where retirees are paid an agreed benefit by former employers regardless of what happens with investments. These pensions have often been generous, commonly linked to final salaries, and are increasingly recognised as unaffordable because people are living longer and interest rates are low. Defined benefit pensions have now largely disappeared in the private sector to be replaced by defined contribution pensions where the amount of the pension is not known in advance and depends on return on investments and interest rates. These pensions are usually less generous, so future pensioners will have lower incomes.
Public sector pensions, including those of NHS employees, are mostly still defined benefit pensions and are paid not from a pension fund, but from government revenue. As people live longer this is a growing burden on the state and has been declared unaffordable by the government, although that is disputed by trade unions. Changing public sector pensions has so far proved politically impossible.
Expenditure on state pensions has increased by less than 2% in real terms over 30 years. The value of the pension has increased faster than inflation, but the overall cost has been contained by the pension age being raised: from 60 to 66 for women and 65 to 66 for men. The age is scheduled to increase to 69. Johnson concluded that the government has done “not a bad job” on managing pensions and has been willing to “bite the bullet on unpopular things.”
Nevertheless, men aged 55-65 now are less likely to be in employment than they were in the 1970s despite being healthier and having a longer life expectancy. Women have higher employment rates at all ages. There was much discussion at the meeting about increasing employment rates among the elderly for the financial benefit of the state and individuals and for the health benefit to individuals. But those who do physical work cannot be expected to work for as long as those who do desk jobs. Increasing the pension age for all thus seems unfair, particularly as those who do physical work tend to have shorter life expectancy and so less time to enjoy their pensions. But raising the pension age for some and not others is not easy.
In contrast to pensions, social care is, said Johnson bluntly, a “total mess.” Social care is paid for by local authorities and is means-tested. The 5-10% of people who have large social care costs have to sell their houses and use all their assets to pay for social care. One of the reasons for creating the NHS was to avoid families being bankrupted by catastrophic health costs, but said, Johnson, the electorate doesn’t understand the risk with social care funding, making it politically difficult to act. There is clearly, continued Johnson, a role for the state, but politicians have ducked the issue for 25 years. There has been an “utter failure of the British state.”
Johnson concluded that as the population ages future governments will have to raise taxes and that there will be a bigger role for the state. He also concluded that inheritance will become a much bigger factor in determining peoples’ wealthy people. Whether or not people are wealthy will depend less on their own efforts and income than on how wealthy their parents were. In other words, social mobility, already poor in Britain, will suffer further.
Richard Smith was the editor of The BMJ until 2004.
Competing interest: RS paid his own travel to the meeting in Cambridge, but food and accommodation (for one night) was provided. He has a generous defined benefit pension from the BMA, which allows him to have four jobs, all of which are unpaid but one of which includes equity, which may provide a generous return or may provide nothing.