Our life in three stages – school, work, retirement – will not survive much longer

108679-bruegel-wedding-dance-outsideMy Comments: We are now starting a periodic review of the basic assumptions about how our lives should be governed, and a review of the fundamental values that define our society. It’s probably overdue, and while I disagree with the tactics so far used to push the doors open to let in a different light, it will work to our advantage in the long run. The challenge will be survive in the short run.

My life is slowing down. It now takes me two hours to accomplish what I was able to get done in one hour just a few years ago. But to avoid terminal boredom, I re-opened my financial planning practice and no longer consider myself retired. The following thoughts resonate with me. Perhaps they will with you too.

Lynda Gratton and Andrew Scott – September 4, 2016

For much of human history, life was well described by Thomas Hobbes as “nasty, brutish and short”. However, continued scientific, economic and social progress over the centuries has raised living standards and life expectancy. While these benefits have not been spread equally across countries, or even within countries, in general, life is now less nasty, less brutish and certainly less short. The challenge now is to ensure that this progress continues in the face of growing longevity.

Over the last 200 years, best practice life expectancy has increased at a near constant rate of more than two years every decade. If this trend continues, a child born in the UK today has more than a 50% chance of living to 105. On average, most of these extra years of life will be healthy ones. It is as if the arc of life has been extended.

Our interest is in what this extending arc of life means for individuals and how government can best respond. Currently, the main focus is on dealing with ageing and end-of-life issues such as pensions and healthcare. But longevity is not just about ageing – it has crucial implications for all ages. Already, people are marrying and having children later, creating mid-career breaks, taking time out to explore, building their own businesses, going back to education. This is already leading to a redefinition of age – how many times have you heard that 70 is the new 60, or 40 the new 30?

Those who live to 100 have around 100,000 extra productive hours than those who live to 70. Undoubtedly, work will take a significant portion of these hours. Historically low interest rates and growing longevity are destroying the inadequate provision societies have made for future pension support. Unless people are prepared to save more, then the inevitable consequence is that they will have to work longer. Already in the UK, one in 10 people over 70 is still in employment, double the figure of 20 years ago.

Simple calculation suggests that, given the current level of household savings, those aged 20 today are likely to be working into their late 70s or even early 80s and those in their mid-40s into their early or mid 70s. We need to create a world where this is feasible and beneficial, a way that makes a longer life a blessing and not a curse.

However, this is not just about working longer – the broader challenge is how to restructure social and working lives to make best use of these extra hours. The life structure that emerged in the 20th century – a three-stage life of education, work and then retirement – is unlikely to survive this elongation.

How can you maintain and build productive assets when most education takes place in your 20s? How can what you have learned remain relevant over the next 60 years against a backdrop of technological upheaval and industrial transformation? There is also the question of vitality – while an unbroken, extended working life may solve the financial challenge, it will inevitability deplete other important assets of life, such as health and friendships.

A way around this is a multi-stage life – with transitions and breaks in between. In one stage, the focus may be on accumulating financial assets, in another creating a better work-life balance. Sometimes, the switches will be driven by personal choice, at other times forced by technological obsolescence.

These multi-stage lives require a proficiency in managing transitions and reflexivity – imagining possible selves, thinking about the future, reskilling and building new and diverse networks. At its best, it offers people an opportunity to explore who they are and arrive at a way of living that is nearer to their personal values. Might it be that this growing realisation of longevity is behind the oft-stated claims about how “millennials” have different values and attitudes to previous generations?

These new ways of living create opportunities and possibilities. Yet most public debate around longevity is deeply negative. It is dominated by concerns over the risks of ill health and senility and the painful realisation that retirement will not be achieved at the age many expected, nor at the level of financial security imagined. Our existing social institutions are proving inadequate to deal with this increased life expectancy and throwing up stresses and strains that require debate and a new policy agenda.

Two pressing issues concern inequality – both across generations and across income groups. The intergenerational issues are the subject of a Resolution Foundation report Stagnation Generation: The Case for Renewing the Intergenerational Contract. If long-term economic growth has declined, the current young will be the first for centuries facing the prospect of lower income than their parents. The situation is worsened if government taxes the young in order to make good past promises made to older generations.

Longevity has increased over time and so affects each generation differently. Those near retirement want a guarantee about pension income, while those emerging into adulthood need support to make the most of a 100-year life and their multi-stage journey. That means that the intergenerational contract needs rewriting to reflect the fact that the working careers of the young will have very different needs to those of the recently retired.

The other pressing inequality is around income. Life expectancy isn’t increasing at the same rate for all, and for some it is declining, with the gap between rich and poor stretching to more than 10 years. Overcoming this gap is challenging. It is possible to redistribute income from the rich, but impossible to distribute years of life. The problem becomes even more acute when retirement ages are increased. If life expectancy isn’t increasing for the poor, but the retirement age is, then there is a real risk of eliminating retirement for many, creating a life that is “nasty, brutish and long”.

So what should governments do? There is already a growing focus on end-of-life issues, such as social care and pensions. For pensions, the main focus has been on changing the parameters of a three-stage life – eg changing retirement age, contribution rates and pension entitlement. These efforts need to be broadened to encompass a wider range of measures that help promote healthy and productive ageing and support a multi-stage life.

Two types of policies are crucial. The first is enabling measures designed to set a positive tone for the debate. That people are living longer, healthy lives is not a negative – it is an opportunity that should be seized. That means shifting age-specific features of the tax and benefits system towards a lifetime approach. Legislation will also be needed to create greater support for those seeking greater flexibility. Take, for example, the length of the working week and provision of holiday time, which are currently standardised. As people realise they may work into their 70s and 80s, they will want to sustain their vitality and productivity by taking sabbaticals and working flexibly. Each will create their way of working and living and legislation will be needed to support this diversity as corporations may be slow to respond, and then for a favoured few. With a longer life, education ceases to be a one-shot game early on, so providing lifetime support, including tax allowances, for further spells of education will be crucial.

The other set of policies is supportive – ensuring that the benefits of a good, long life are spread to the many. Tackling inequality in life expectancy has to be a priority and needs to go beyond the usual platitudes of public education and health expenditure to get a deeper understanding of its causes. Moreover, given the divergence in life expectancy, it seems inevitable that a single retirement age and a uniform state pension cannot be sustainable. Inevitably, this suggests a multi-tiered pension system, with different options of retirement age and pension benefits linked to life expectancy and income.

More radically, if differences in investment are what drives inequality, then over a longer life, inequality will increase. During the 20th century, there was significant state investment in free education and infant care – the key periods of investment for a three-stage life. As increasing life expectancy produces a multi-stage life, there will be plenty of other periods when similar investments are required. The changes required to adapt to a 100-year life are already under way, but governments and businesses lag substantially behind the actions of individuals.

This is an agenda for the decades ahead and balancing the very different needs of different groups will be challenging. The danger is that the baby boomers will focus government attention on retirement and healthcare, while the opinions of the young go unheeded about the likes of lifetime education, skill development, flexible working and transitions.

The increase in longevity has occurred slowly, but has reached a level that requires a fundamental redefinition of the social and financial institutions that support it. We can each look forward and do our best to prepare ourselves and our families for these longer lives. But the political and policy debate is only just beginning.