Britain is approaching a tipping point where its non-working population grows faster than its working population, for the first time outside of economic downturns since the early 1980's.
As part of the Resolution Foundation's Integenerational Commission, the report looks at how life expectancy has risen and shifted the patterns of people's lives over the last century.
This is from staying in education for longer, having children later in life and fewer of them, and working to older ages.
The report highlights people are living longer, with almost two thirds of baby boomers expected to reach age 80 and over a third of babies born over the next 20 years set to live to 100.
The report also sets out the challenges for individuals and the state of maintaining incomes over a longer life and supporting a growing older population.
According to Resolution Foundation, the number of non-workers in Britain is set to grow by 350,000 in 2017 compared to an increase of 100,000 workers, despite employment being expected to remain at a record high.
The UK economy has benefitted hugely from rising life expectancy and increased employment among its large baby boomer population, which stands at over 15m over the last 30 years.
Half of baby boomer women are still working at the age of 60, compared to just a third of women from the generation before them. This baby boomer dividend has increased the tax base and helped fund education, health and welfare provision.
The report does warn, however, that this year marks a tipping point in which the size of the UK’s non-working population grows faster than its working population – and turns the dividend into a debt.
This trend is set to continue and accelerate over the coming decades.
It warns the falling ratio of the working age population to dependents will place growing economic pressure on the remaining workforce.
Resolution Foundation's analysis shows if the UK had to support today as large a pensioner population as is expected in 2060 without any new policy change it would imply a cost pressure of £15bn a year, which is equivalent to a 4p rise in the basic rate of income tax, to fund welfare and health provision.
Additionally, with the government's existing approach of accelerating increases in the state pension age, that cost could be higher.
A sign that further acceleration may be on the cards is the latest government review of the state pension age which suggests it could reach 68 by 2030, rather than 2046 as under current legislation.
According to the Resolution Foundation, a renewed drive to reach full employment, including helping older and disabled workers to remain in employment, would boost employment by over a million, and help maintain the ratio of workers to non-workers for decades to come.
Additionally, the report welcomes the recent abolition of the default retirement age, which has helped drive recent employment growth by ending legal age discrimination, and calls on the government to go further by introducing a new 12-month ‘right to return’ for workers who suffer from a period of ill-health.
David Finch, senior economic analyst at the Resolution Foundation, said so far the solution to pay for our ageing society has focused on increasing the state pension age to delay when people can draw on public support.
He said: "But just as important is ensuring that more people are able to work up to that point through a renewed focus on full employment. That will boost the living standards of those working and reduce pressure on the public purse.
“Rising employment among older workers has been one of the biggest economic success stories of recent years and further progress can be made with government support.
"A new right to return to work after ill-health would help more older and disabled workers to remain in employment. This would deliver a huge boost to living standards and reduce the economic cost of longer living.”
ruth.gillbe@ft.com
