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Cablegate: The Uk's Aging Population Strains the Social

VZCZCXRO5224
RR RUEHRN
DE RUEHLO #2595/01 1871413
ZNR UUUUU ZZH
R 061413Z JUL 07
FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC 4322
INFO RUEHSS/OECD POSTS COLLECTIVE
RUEHED/AMCONSUL EDINBURGH 0775
RUEHBL/AMCONSUL BELFAST 0836

UNCLAS SECTION 01 OF 03 LONDON 002595

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: SOCI ECON TBIO UK
SUBJECT: THE UK'S AGING POPULATION STRAINS THE SOCIAL
SAFETY NET

REF: STATE 29783

LONDON 00002595 001.2 OF 003


1. (U) Summary: The UK is grappling with the booming growth
of its elderly population. There were 20 million Britons
aged 50 and over in 2003, a 45 percent increase since 1951.
This number is projected to increase by a further 36 percent
by 2031, to 27.2 million, or 42 percent of the population.
Rising public health care expenditures, at 7.1 percent of the
UK's GDP, have not yet been matched by greater longevity or
better quality of life. Gordon Brown has already brushed up
against this third rail as Chancellor; his choices will not
be any easy as Prime Minister. End Summary.

Boomers Age, Demand Attention
-----------------------------

2. (U) The aging population in the UK, as defined by the
Department for Work and Pensions (DWP), is anyone aged 50 or
over. There were 20 million such people in 2003, in a total
population under 60 million, a 45 percent increase since
1951. This number is projected to increase by a further 36
percent by 2031, to 27.2 million, or 42 percent of the
population. For the first time ever, the majority of voters
are likely to be aged over 50 in the next General Election,
expected in 2009 or 2010. A 2006 study by the OECD places
the UK 9th in terms of public spending on health care, while
its life expectancy rates (76.2 for men and 81.3 for women)
put it in the bottom quarter of all 30 OECD countries. Since
coming to power in 1998, the Labour government has more than
doubled the National Health Service (NHS) budget, increasing
it from 33 billion in 1997 to 72 billion in 2006. Although
the Labour Party's spending increases have yet to produce
immediate improvements in health and well-being, it is,
arguably,
too soon to ascertain what impacts they will have in the
long term. In terms of old age pension rates, the UK falls
short, coming in last among OECD countries, although
pensioners' incomes have risen faster than average earnings
-- over 28 percent in 8 years -- and the number of pensioners
living in poverty fell by 800,000, or 8 percent, during
Brown's chancellorship, according to the Office for National
Statistics and Institute for Fiscal Studies (IFS),
respectively.

3. (U) The DWP is the government body most directly involved
in addressing the concerns of the elderly. Opportunity Age,
first published by the DWP in June 2005, is the UK
government's official strategy for addressing the challenges
and opportunities presented by an aging society. The
strategy aims to end the perception of older people as
dependent; ensure that longer life is healthy and fulfilling;
and that older people are full participants in society. It
also aims to achieve higher employment rates overall and
greater flexibility for the over 50s in continuing careers,
managing health conditions and combining work with family and
other commitments. Specifically, the government's program
under Opportunity Age aspires to a world-leading 80 percent
overall employment rate, including one million more older
people in work.

Later Retirement Could Help
---------------------------

4. (U) In 2003, the British government appointed a special
committee chaired by Lord Adair Turner, Vice Chairman of
Merrill Lynch Europe and former head of the Confederation of
British Industries, to undertake a comprehensive study of
pension benefits in the UK. In May 2006, the government
published a White Paper -- the precursor to draft legislation
-- which adopted virtually all of the reforms recommended by
the Turner Commission. The White Paper proposes sweeping
changes to the British pension system, both public and
private. The changes include an increase in the retirement
age for both men and women to 68 by 2050, more generous state
pensions with indexing linked to earnings rather than prices,
and creation of a voluntary national savings plan, based on
employee/employer contributions that would require
individuals to "opt-out" if they did not wish to participate.
The number of years required to pay into the system in order
to receive benefits will drop to 30 to make it easier for
individuals to l
eave the workforce to care for children or other relatives.

5. (U) In a recent lecture at the London School of Economics,
Turner identified pensions, healthcare systems, and
creativity output from older workers as the major concerns
associated with an aging UK society. Turner believes the UK
population will be living healthier lives, allowing for them
to work productively until an older age. This conclusion
allowed his commission to recommend the cost saving measure

LONDON 00002595 002.2 OF 003


of raising the State Pension Age to 68 from the current 65.
Lower fertility rates combined with greater family
inheritance per person will also be an effective way to
provide for increased GDP spending on the aged population, as
less will be spent on youth and new housing development.

6. (U) Andrew Harrop, the Head of Policy for Age Concern, a
non-profit organization that promotes the well-being of older
people, tells us he sees Opportunity Age as the best
government policy thus far to deal with aging in the UK, but
feels that it is not suited to meet long-term problems.
There is talk of possibly creating a governmental Office of
Aging, but Harrop believes there is not a lot of enthusiasm
for this within the government.

Next Headache: Long Term Care
-----------------------------

7. (U) Over the past five years, pension reforms have been at
the forefront of the political debate, while the long-term
care system will likely become the next big issue. Age
Concern's assessment of increased longevity in the UK, unlike
that of the government's Pensions Committee, does not
indicate that the UK public will lead healthier, longer
lives. This gloomy conclusion directly contradicts a
fundamental assumption on which all the recommendations of
the Turner Commission rely. Age Concern argues recent
research predicts a very large increase in disability caused
by increases in age-related non-communicable disease in all
areas of the world, and foresees an increase in the need for
long-term healthcare and a debate about how it will be
funded.

8. (U) Funding at the national level is not the only source
of support for the aged. In a report "Securing Good Care for
Older People" by the independent health care charity King's
Fund in March 2006, author Derek Wanless indicates that for
the over one-million older people (65 and over) who use
publicly funded social services, local authorities spent GBP
8 billion ($16b) in 2004-2005, with private spending on
residential and home care estimated at more than GBP 3.5
billion ($7b).


Brown's Choice: The Young or the Old
-------------------------------------

9. (U) The political sensitivity of pensions was
demonstrated by a storm of public criticism of Chancellor
Brown's "5 billion pound tax raid on pension funds" of civil
servants, as the media dubbed the building impact of pension
reforms announced in his first budget message in 1997.
Brown's decision was reexamined publicly in 2007 following
its release through a Freedom of Information Act request.
Brown was accused of weakening the private pension system
through a tax law change. Although removing the 25 percent
tax credit on share dividends did real damage to pension
funds, (estimated to be about a 50 billion dollar reduction
in their existing asset values), each individual pension fund
lost only about 1 percent a year. Furthermore, shifting
markets and increased longevity have had more negative
impacts on pension funds than the removal of the credit, yet
Brown's cuts remain the primary target of blame for total
pension drops. The outrage over the perceived "raid on
pension funds" reveals the primacy of political assumptions
about aging and retirement and their power to color economic
realities. The May 2006 UK Government White Paper "Security
in Retirement: Towards a New Pensions System," proposed ways
other than restoring the tax cuts to strengthen the system as
a whole, including offering low-cost personal retirement
savings accounts to those individuals who do not have access
to work pension plans, increasing the State Pension age, and
improving the basic State Pension to average earnings.

10. (U) The IMF weighed in on the economics of aging in its
bi-annual World Economic Outlook 2007, reporting the UK is
ill-prepared to deal with a population that, peaking at 67
million in 2050, will consist of more than 27 million
individuals aged 50 and older--4 million of whom will be 85
and older-- and will have to spend an extra 4 percent of its
GDP to cope with it. Her Majesty's Treasury in December 2006
published a "Long-term Public Finance Report: An Analysis of
Fiscal Sustainability," a study that contains analysis of the
implications of an aging society from a public finance
perspective. It found that even though the UK is projected
to age less rapidly than other developed countries, these
trends are likely to have a profound effect on Britain's
society and economy over the coming decades.

11. (U) The future of the UK government policy on aging in a

LONDON 00002595 003.2 OF 003


Brown government is uncertain. Harrop speculates that Gordon
Brown will treat aging issues in ways similar to Prime
Minister Tony Blair, although instead of favoring increased
benefits for all pensioners, Brown will continue to champion
the use of means testing to direct increases to the poorest
pensioners first. Additionally, Harrop worries about the
priority Brown will give to older people in the future, as he
believes Brown is more interested in children and families
and might give less financial attention to the care of older
people.

12. (U) The preceding report was prepared by ECON interns
Lauren Sible and Jennifer Storz.

Visit London's Classified Website:
http://www.state.sgov.gov/p/eur/london/index. cfm
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