A fair life’s work

In which I argue for a new social contract around work and retirement that is fit for the 21st century

At the start of 2023, cities across France were engulfed in strikes and demonstrations. Rubbish was left uncollected, trains and buses brought to a standstill, and more than a million people took to the streets in protest. ‘Farem tot petar’ read the freshly sprayed graffiti in Marseilles — ‘We will break everything’ in the local dialect Occitan. Fires were started in the Place de la Concorde in Paris, and the Gendarmerie used tear gas to disperse crowds. Hundreds were arrested in many nights of widespread civil unrest. And the cause? President Macron’s decision to push through an increase in the French age of access to the state pension from 62 to 64.

Perhaps you followed the story in the news at the time. If you didn’t, perhaps you’re surprised that it was pensions that sparked such intense public outcry. I mean, nobody really thinks about or cares about pensions that much, do they? Would you join a march about your pension? But while other countries may not yet have seen the strength of public concern shown in France, this move from the French government is far from unique and the issues it raises are fundamentally important for all of us.

Who decides when you’re going to work over the course of your life, and when you’re not? You do, of course, but a lot of other different people and institutions are also part of an unwritten deal with you about which and how many years you work to earn money over your lifetime, and when and for many years you don’t.

If you’re currently working, you probably have a deal with your future self, perhaps only vaguely expecting or perhaps concretely and actively planning a phase of retirement when you are older. If you have a partner, you and they might have made a deal together about how much and when you each work, particularly if you also have children who depend on you. If you have an employer, you have a deal with them about how much they pay you and what that pay then allows you to save for times not working, and what they provide for you as a pension. The government sets a whole host of rules requiring you to pay tax to support the state pensions of currently retired people, promising when you are older that taxes from younger generations will pay for a state pension for you, and sets both an age you’ll get access to that benefit and how much it will be. It also sets rules in terms of employment law about things like minimum wages, parental leave and benefits and income support if you need it. And as a society, we hold a range of cultural assumptions about who ‘should’ work, and who’s job it is to pay to support people who don’t work. You will probably have got some of your own views about all this from your parents, and from your social circle and other influential voices you respect and listen to. And together, all influenced by and influencing each other, these institutions and individuals with their values and their various priorities form a sort of social contract that guides when you will work and when you won’t.

It’s a complex social contract, but at its absolute simplest in the UK, we divide life into three stages: childhood, work and retirement. And we divide the responsibility for funding our lives between three groups: people as private individuals, often with family obligations, people as taxpayers contributing to collective state spending, and employers. At the start of your life, taxpayers and your parents will support you as a child and in your childhood and young adult education. You should then work, for around 40 or so hours a week, with some holidays, and perhaps raise children of your own. Meanwhile, you and each of your employers over your life will pay money into private pension pots, while you also pay taxes (which support the state pensions of current retired people and provide a much less generous level of safety net for working age people when they can’t work). When you stop work, in around your mid-60s, you will get those private pension pots you and your employers have paid into, and you will also get a public state pension paid for by the taxes of younger generations currently working, and you can use those to fund your retirement and enjoy a period of full-time leisure at the end of your life. There’s much more to it than that of course, and the experience of any one individual could well be different, but, very broadly, that’s the model we’re working with.

This hasn’t always been the deal. State pensions didn’t exist before they were invented in Germany at the end of the nineteenth century, and our state pension is only as old as the NHS. Henry Ford was instrumental in the standardisation of the 40 hour working week in the first half of the twentieth century. And other major developments like the right to shared parental leave and the minimum wage are of course much more recent.

So our social contracts are changing all the time. When large cracks appear in them, caused by massive global social, cultural, economic or technological change, we have some choices. We can let them grow, and watch as some groups fall through the cracks while others don’t, or we can patch them over, or we can act more fundamentally and write a whole new contract. And that’s much of politics in a nutshell really — keeping up with these large forces of change, and fiercely debating who should do what and pay for what in response to them. What the protestors in France noticed is that today’s deal has been developing some whopping great cracks. And the same is true in the UK.

Crack number one is that we’re on average living a lot longer than we used to. Over the course of the last two hundred years, we’ve gained around an extra two or three years of life expectancy every decade. When my granny was born in Lancashire in 1920, life expectancy for baby girls was 59. By the time she had her first daughter, my mum, life expectancy at birth had risen to 71. It was 77 by the time I was born in 1978, and my own daughters live in a generation where estimates suggest as many as one in three girls could live to 100. Thanks to advances in sanitation, vaccination, nutrition, social security and medical science we have come along way from Hobbes’ ‘nasty, brutish and short’ human existence. Our lives now are mostly healthy, safe, and long.

And it’s not just our individual lives that are longer. As a result of declining mortality being combined with both falling birth rates and the ageing of a couple of really large cohorts of babies born in two waves of baby booms after the end of World War Two and in the early 1960s, the age structure of our population has changed. By 2050, it is projected that one in four people in the UK will be aged 65 years and over.

These dramatic demographic shifts have some significant effects on our social contract for work and retirement, at both the individual and societal level. At the individual level, if we’re living longer lives, then, all other things being equal, if we want to retire at the same age our parents did, we’ll need more money to cover our longer retirements. And at the societal level, our older population means more people of pension age being supported through tax by a relatively smaller population of working age adults. The basic 20th century arithmetic assumption on which our state pension is based — that a larger group of working age adults will help to support a much smaller group of older adults in their relatively short retirements — just doesn’t add up anymore. This is a huge challenge to our public finances.

If we were all reaping the benefits of longer, healthier lives equally, though, there would be a fairly simple solution — we could all work longer and retire later. That’s the solution pensions system policymakers come up with when they increase the age of access to state pensions. But while life expectancy on average has risen dramatically compared to previous generations, we’re not all living longer. So the second crack in our social contract is health inequality. Over the last ten to 15 years, over and above the more recent effect of Covid, the rate of increase in our life expectancy has stalled, and it’s even gone into reverse for the poorest decile of women. If you’re a woman who is poor, actuaries are now predicting you will live a shorter life than they would have predicted for you ten or 15 years ago. It’s no simple task to determine the cause of this setback, or to predict whether or not it represents a new normal or a temporary blip, but cutbacks to public services and rising rates of poverty seem to be part of the cause.

There are even deeper inequalities when it comes to healthy life expectancy — that is, the number of years an average person can expect to live in good health. Healthy life expectancy is getting on for twenty years longer for people living in the richest parts of the country than the poorest. A boy born in a wealthy part of London, can expect to live 17 more years in good health than a boy born in Belfast. Should our expectations for the length of working life be the same for them both? With inequalities this deep, a whole tranche of our workforce risks working till they drop, before even seeing a whiff of their pension, or being forced out of work through disability and ill-health and reliant on our much less generous working age benefits system until they reach pension age.

Crack number three concerns the relationship between work and a decent standard of living and retirement. Eleven per cent of all workers in the UK live in a household in poverty. That rises to 18 per cent of part-time workers, and 21 per cent of self-employed workers. Around two thirds of all children and working-age adults who live in poverty in the UK live in a household where at least one person is working, and this has increased from around 43 per cent in 1996/7. So being in work fails to protect millions from poverty. While we could feel proud about our relatively high employment rate these days compared to the eras of large-scale unemployment we have seen in the past, too much of this increase in employment has meant people getting low-paid, low-quality work. A rise in insecure jobs is also part of this. Around a fifth of UK workers experience work insecurity, particularly those that work in agriculture and hospitality. Recent polling by the Living Wage Foundation found that just over half of shift workers receive less than a week’s notice of their shift schedules, while 12 per cent of shift workers receive less than 24 hours’ notice. As ever there are multiple reasons behind these developments. Worker power has been in decline for around four decades as membership of trade unions has fallen, and employers increasingly set and control pay. And our benefits system is now heavily dependent on looking for work, while caring much less about that work being good quality work.

If work is less likely to pay you enough for a decent life in the here and now, it is also less likely to pay you a generous pension — the fourth crack that has emerged in our deal. Employers in the private sector have largely retreated from offering the more generous final salary or ‘defined benefit’ schemes which not only offered considerably more generous payouts than are generally now offered in the defined contribution schemes that have replaced them, but also offered much greater protection from risk for individuals by guaranteeing, as far as possible, an annual sum until death rather than just guaranteeing a pot of money for the individual themselves to somehow judge how to safely manage over the unknown length of the rest of their lives. You can perhaps see why employers have done this — the potential future costs of paying out generous pensions for what could be 20, 30 or even more years to their ex-workers looked financially crippling. But they have passed that risk and that responsibility squarely on to the shoulders of workers, and we, the workers, appear to have accepted it.

A little over a decade ago, pensions policymakers intervened in workplace pensions with a new system of auto-enrollment, placing all workers over the age of 22 and over a certain earnings threshold, working for a large enough employer, into a default workplace pension totalling a minimum of eight per cent of their salary per year. This is rightly touted as an incredible success story in recent policymaking, bringing millions of workers into regular pension saving. But there’s a big problem — for most people, particularly those in their 40s and 50s who missed out on final salary pensions schemes but also didn’t benefit from auto-enrollment for the early decades of their working lives — eight per cent just isn’t enough. Only one in seven defined contribution pension savers are saving enough to ensure the standard of living they say they expect in retirement. Six in seven of us, then, it would seem, could be in for a nasty shock.

This pensions inadequacy is compounded of course by the parlous state of our housing market, an issue absolutely fundamental to both working age and retirement living standards, but perhaps one too immense to attempt to incorporate into a brief survey of issues with our deal around work and pensions. It is essential to recognise, though, that one of the major ways in which retirements of the future are unlikely to look like retirements of today is the staggering relative unaffordability of housing for future generations of would-be savers and eventual retirees.

Do you know if you’re saving enough for the retirement you want? The UK’s Department of Work and Pensions summarised extensive recent research into public attitudes to pensions as being characterised by “detachment, fear and complacency”, which sums it up nicely. A slightly less rigorous survey found most people in the UK would rather do their ironing than open their annual pension statement. And neither the government nor the pensions industry have managed to solve that problem of very low levels of understanding and engagement in pensions. Indeed, auto-enrolment as a policy is predicated on the very assumption that people understand and care so little about pensions, they can be defaulted into contributing to one without even noticing. But in a world where pensions are not as generous as we perhaps blithely assume they are, and where we now reach retirement and are expected to find all the various pensions we might have amassed across our many jobs, and then predict the future and judge how to spread that money across the rest of our lives, then “detachment, fear and complacency” is a recipe for potential disaster.

I’ve got two more big cracks in our deal left to mention — and you might well think of others.

Crack number five is our failure to invest in lifelong learning. We’ve never taken adult education particularly seriously. When Tony Blair gave his final party conference speech before the 1997 election, he memorably said he had three priorities: education, education and education. But what he really meant was education for everyone under the age of 21. But the pace of ecological and technological change increasingly means we can no longer rely on the education we received as children and young adults to sustain a long working life peppered with multiple job and career changes. It’s pretty much a truism these days to opine that the days of a job for life are over. Predictions vary, but many predict that millennials and Gen Z workers will have around ten different jobs over their lifetime. And yet we continue to fail to invest in skills and adult education to enable workers of all ages to upskill and retrain to progress our jobs and careers as they age.

Finally, crack number six is — whisper it — we haven’t nearly finished responding to the news that the people we generally expect to care for children and older adults (and I’m thinking of women here) also actually work these days. When William Beveridge wrote his blueprint for our welfare state he clearly and explicitly expressed his assumption that married women would not work and would instead care for children, elderly relatives and the home. And women do still do the majority of this unpaid labour, it’s just that they do it alongside also doing paid work, and in a system that broadly fails to compensate for their on average fewer hours and years at work, culminating in women’s pension incomes being on average less than 40 per cent of men’s.

In summary, then, we’re living longer than it looks like many of us can afford, with poorly paid work, less generous, riskier pensions that we don’t understand, outdated qualifications and in a world that still hasn’t worked out how not to penalise people who take on a lot of society’s unpaid work. What should we do about these cracks? What should a fair deal for a fair life’s work look like in the middle decades of the 21st century?

Do we still collectively think it is right and proper to make sure that everyone gets to have a retirement when they are old? If so, when is old nowadays, and is it the same for everyone? Is paying pensions at a standard chronological age fair in a world of double-digit year differences in life expectancy between rich and poor? How can we adapt our deal about work and retirement so that it fits a world where the people that care for children and elderly parents also work? If we are all going to need to have multiple careers and time to retrain and upskill to keep up, what institutions and support do we need to help us really do this at scale? Is it ok that pensions are worse than they used to be, and is the only and best answer that people should work longer if they want to save more? Do we mind that employers pay workers much less generous pensions now, or do we need them to pay more? Should having a job be enough to lift someone out of poverty? How do we balance the needs of each generation at a given point in time, so that life for a millennial or Gen Z worker doesn’t end up much less fair than the deal a Baby Boomer got? How do we also balance the needs of each generation as they age, so that we don’t risk taking away the benefits and protections afforded to one age group only to find younger generations desperately need those benefits and protections back when they reach that age themselves?

I have some of my own answers to these questions, and no doubt you will have yours. Arguably, there’s no objectively right answer to any of them. But it does seem to me to be self-evidently urgent that we spend some time and energy debating them.

Perhaps it won’t just be Paris, Lyon and Marseilles that descend into riots if we don’t start to do things differently. Or perhaps workers in other countries won’t protest. But we will suffer, and eventually we’ll likely protest at the ballot box if not on the streets. We’re working and ageing and retiring in the twenty-first century, but with a social contract forged in large part in the twentieth, for lives of a sort of we no longer live. Let’s correct that, together.