Ready for Ageing: Report of the House of Lords Committee on Public Services and Demographic Change

This Committee published its Report today. For anyone interested who is interested in the future of public services and the welfare state, looking beyond the short-term debate about austerity, it is essential reading - and it is only 10 pages long, although there are extensive annexes setting out the evidence base.  

I (along with the estimable Professor Howard Glennerster at LSE) was a Specialist Advisor to the Committee. We take no responsibility for the Report's conclusions, and I don't necessarily agree with every detail, but for what it's worth I think they are broadly sensible. Below, I have picked out (verbatim) what I think are the key points; personally, if I could highlight one, it would be this passage on fairness:

"There are likely to be considerable increases in public and private spending over the next two decades on services that are particularly important to older people: healthcare, pensions and social care. This is not a bad thing; over time, an increasingly affluent society (as, on the whole, we expect to become) is likely to want to spend more on improving the lives of its citizens, and an older society is likely to want to spend more on the priorities of older people. This increased spending can only be financed by individuals directly, or through taxes, social insurance, or cuts elsewhere: it must be financed fairly.

 The welfare state has largely meant people paying in when they are young and drawing out when they are older; this should continue. But we have to be wary of shunting too many costs onto younger and future generations. In particular, the property boom has led to a very large transfer of wealth to older, better-off homeowners, which has increased housing costs substantially for younger generations. Younger generations will benefit from being part of a richer society in many ways in the future, but they will also have to service large public and personal debts and may often have poorer pensions.

It does not seem fair to expect today’s younger taxpayers—especially those not born to better-off parents—to pay more for the increased costs of an older society while asset-rich older people (and their children) are protected." 

More detail below. 

Overall

Longer lives represent progress, and the changes do not mean a great economic or general fiscal crisis... However, as well as opportunities, the changes create major challenges for individuals, for employers, for our welfare services, and for the Government and all political parties.

Working longer

 As people live longer they will need enough income to support a good quality of life; it would be naive to think that this can simply come from taxpayer-funded sources. But many are not saving enough to pay for a decent standard of living over a much longer retirement. People should therefore be enabled to extend their working lives if they wish to do so, as a vital part of the response to increased longevity.

Reforming pensions and savings

The UK has a worrying under-saving problem. The Pensions Commission began a period of reform and when complete, this will represent progress. But despite this, the current system of state and private pension provision is not adequate as many people, young and old, expect far more pension than they will get. 

Under the current defined contribution pensions system, the individual does not know what income the pension will provide and therefore what he or she is saving for. Defined contribution pensions now dominate private pension provision, with risks and uncertainties, and are inadequate for many, especially women.

Auto-enrolment is a big step forward for people who would otherwise not be saving for a pension. However, while helpful, auto-enrolment alone will not solve the problem of under-saving. 

The Committee urges the Government, pensions industry and employers to tackle the lack of certainty in defined contribution pensions and address their serious defects to make it clearer what people can expect to get from their pension as a result of the savings they make.

Using the value in our homes

Many older people have seen the value of their homes increase considerably but have not viewed this as a partial solution to some of the challenges of living longer. The Committee considers that it is reasonable to expect those who have benefited in this way to support their own longer lives. People need to be able to use their assets to help pay for the cost of their social care, and to release money to adapt their homes and to support their incomes.

Increasing pressures on health and social care

The NHS is facing a major increase in demand and cost consequent on ageing and will have to transform to deal with this.  The Nuffield Trust has recently estimated that under the current healthcare system, the NHS in England will see a funding shortfall of £54 billion by 2021/22 if NHS funding remains constant in real terms, if no productivity gains are made, and if trends continue in current hospital utilisation by people with chronic conditions and in healthcare costs.  

Social care funding is already in crisis, and this will become worse as demand markedly increases. Many people needing social care now are not getting it as eligibility thresholds are tightened because of reduced local authority funding.  The Government’s response to the proposals made by the Commission on Funding of Care and Support (the Dilnot Commission) is welcome and necessary but in our view will not be sufficient because it will largely benefit higher income groups by protecting them from depleting their housing assets rather than address the current funding crisis . It does not bring extra funding into the system to tackle the current funding crisis or address the problem of expanding need in the coming decades. There should be a sharing of responsibility for social care between individuals and the state. 

Care at home—whenever possible

Older people with long-term conditions need good, joined-up primary care, community care and social care, with effective out-of-hours services.  The inter-dependent nature of health and social care means that the structural and budgetary split between them is not sustainable: healthcare and social care must be commissioned and funded jointly, so that professionals can work together more effectively and resources can be used more efficiently. 

The Government must set out the framework for radically transformed healthcare to care for our ageing population before the general election in 2015. All political parties should be expected to issue position papers on the future of health and social care within 18 months, and address these issues explicitly in their manifestos for the 2015 election.

Fairness

There are likely to be considerable increases in public and private spending over the next two decades on services that are particularly important to older people: healthcare, pensions and social care. This is not a bad thing; over time, an increasingly affluent society (as, on the whole, we expect to become) is likely to want to spend more on improving the lives of its citizens, and an older society is likely to want to spend more on the priorities of older people. This increased spending can only be financed by individuals directly, or through taxes, social insurance, or cuts elsewhere: it must be financed fairly.

The welfare state has largely meant people paying in when they are young and drawing out when they are older; this should continue. But we have to be wary of shunting too many costs onto younger and future generations. In particular, the property boom has led to a very large transfer of wealth to older, better-off homeowners, which has increased housing costs substantially for younger generations. Younger generations will benefit from being part of a richer society in many ways in the future, but they will also have to service large public and personal debts and may often have poorer pensions.

It does not seem fair to expect today’s younger taxpayers—especially those not born to better-off parents—to pay more for the increased costs of an older society while asset-rich older people (and their children) are protected. For this reason too, an effective equity release market to unlock the housing assets held by older people is important.

There is a potential for inequalities in our society to increase considerably as the population ages because of inequalities in health, savings and pensions, with a growing divergence between those for whom longer life is comfortable and those for whom living longer involves greater exposure to risks while they have few assets to draw upon.

Are the Government ready for ageing?

The ageing of the population is inevitable, and affects us all. The major changes this Report proposes may take a decade to bring about, and should inform the priorities for the next spending review. The Government must make the case to the public as to why changes are needed. If a government tries to move some age-related benefits onto different eligibility criteria without setting out a vision for our old age and committing to make major improvements in some areas, significant opposition would be inevitable. Our society is intelligent and pragmatic and is capable of understanding the arguments for change.  The Government should set out their analysis of the issues and challenges, and their vision for public services in an ageing society, in a White Paper to be published well before the next general election. 

Principal conclusions and recommendations

• The Government and employers need to work to end ‘cliff-edge’ retirement, by enabling more people to work part-time and to wind down work and take up pensions flexibly. It should be beneficial to defer taking state and private pensions. Employers need to be much more positive about employing older people. The Government should publicly reject the ‘lump of labour fallacy’ that wrongly argues this will disadvantage the young 

• The Committee urges the Government, pensions industry and employers to tackle the lack of certainty in defined contribution pensions and address their serious defects to make it clearer what people can expect to get from their pension as a result of the savings they make (paragraph 15).

• People with housing equity should be enabled to release it simply, without excessive charges or risk. The Government should work withthe financial services industry to ensure such mechanisms are available, and to improve confidence in them

• The NHS is facing a major increase in demand and cost consequent on ageing and will have to transform to deal with this. Because of this rising demand, without radical changes in the way that health and social care serve the population, needs will remain unmet and cost pressures will rise inexorably.

• To meet the needs of the population, and to achieve this shift in services, the health and social care system needs to work well 24 hours a day, seven days a week.

• The inter-dependent nature of health and social care means that the structural and budgetary split between them is not sustainable: healthcare and social care must be commissioned and funded jointly, so that professionals can work together more effectively and resources can be used more efficiently. The Government and all political parties will need to rethink this issue

• The Government must set out the framework for radically transformed healthcare to care for our ageing population before the general election in 2015. All political parties should be expected to issue position papers on the future of health and social care within 18 months, and address these issues explicitly in their manifestos for the 2015 election.

• Central and local government, housing associations and house builders need urgently to plan how to ensure that the housing needs of the older population are better addressed and to give as much priority to promoting an adequate market and social housing for older people as is given to housing for younger people.

• The Government should set out their analysis of the issues and challenges, and their vision for public services in an ageing society, in a White Paper to be published well before the next general election.

• The Government elected in 2015 should, within six months, establish two commissions based on cross-party consultations: one to work with employers and financial services providers to examine how to improve pensions, savings and equity release, and one to analyse how the health and social care system and its funding should be changed to serve the needs of our ageing population. Both commissions should be required to report within 12 months and to make clear recommendations for urgent implementation. We also conclude that when political parties are working on their manifestos, they ought to consider the wider implications of the ageing society for the balance of responsibilities between individuals and the Government.