Time to deal with the demographic timebomb

It said that a more focused state pension system means that many people will need to make a greater contribution to their own living standards during retirement.

But reform of entitlements “should no longer be put off”.

“The political challenges of reform are high (powerful vested interests) and many members of the public are anxious about change. Yet undertaking reform quickly would provide real benefits,” the report said.

“Even just in fiscal terms putting the welfare state on a more affordable footing sooner rather than later would be beneficial. Yet the argument for early reform is much more than a fiscal one. The temptation for governments will be to put off dealing with these challenges but this will limit future governments’ options.”

The Chartered Insurance Institutehas welcomed Reform’s report into demographic change.

“Global ageing presents a dangerous combination of dwindling taxation revenue and burgeoning health and social care costs,” the CIIsaid.

“If left unchecked, not only could these headwinds lead to crippling levels of government debt, but they could also propel us into long-term economic stagnation or worse.

“As we noted in our latest CIIFuture Risk report - ‘ Defusing the Demographic Timebomb’, a “New Deal” is needed.

“This must include consistent and predictable government and regulatory policy, and increased competence and transparency across the insurance industry. Continual re-skilling of the labour force will also be vital for a sustainable future and employers will play a key role in this regard.

“And above all, greater political and public recognition of the challenge as well as action to produce long-term, viable solutions. ”

“With longevity continuing to rise, all stakeholders must now “grasp the nettle” to deliver a Beveridge style plan fit for twenty-first century society.”

The Reform report said the state pension system should focus on poverty reduction.

“This means that the ways in which the pension automatically increases (indexation) over time requires review, particularly in the United Kingdom. This also means that supplementary pension benefits should restricted to cases where there is a clear policy rationale for them.

“Again, this is particularly an issue for the United Kingdom, with programmes like the Winter Fuel Allowance, free bus passes and free TV Licenses being particularly poor value for money. As a simplification measure entitlement in the United Kingdom should also be based on residence rules not contribution histories.”