Research: The Dependency Trap – are we fit enough to face the future?

Ageing populations and a decline in the ratio of workers to retired people means that the pressure on state systems will continue to become ever more acute. This report, commissioned by the Centre for the Study of Financial Innovation, advocates longer working lives that are healthier.

Key findings:

• Economic activity deteriorates once individuals reach 50, a major cause of inactivity is ill health and disability. Therefore, raising the state pension age (SPA) is not enough to mitigate the adverse impacts of ageing on the economy and people’s capacity to earn and save.
• The key challenge is to seek ways to improve economic activity rates between the ages of 50 and 70. This includes public policy initiatives to prevent or delay the onset of ill health, employers’ efforts to create more opportunities for workforce participation, and financial services products that mitigate the effects.
• To expand earnings/savings capacity at older ages, three things need to happen: earnings should peak later to improve incentives to stay in work; economic activity rates need to rise from age 50; and productivity should go up.

This report advocates an ‘active ageing scenario’. It argues that raising the activity rate of the working age population from 80 per cent to 85 per cent would have the effect of slowing down planned rises in the SPA after 2030.