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The lack of savings by the UK personal (and private) sector has been a matter of concern to us for some time, in part because it has been clear that inadequate provision has been made for future pension liabilities. The recently published Turner report has highlighted this problem and suggested that on current commitments some 5.2 per cent more of GDP needs to be directed to pensioners in 2050 than is currently the case. Assets have to be built up to provide this extra income, and increased saving is necessary in order to do this. In this note we consider the macroeconomic impacts of building up assets to ensure that the increasing allocation of income to pensioners that an aging population may require is managed efficiently.
1 First Report of the Pensions Commission prepared under the chairmanship of Adair Turner: ‘Pensions: Challenges and Choices’, London, HMSO.
2 Many of these issues are discussed by Sefton and van der Ven (2004) in National Institute Discussion Paper 244, ‘Does Means Testing Exacerbate Early Retirement?’, who use micro simulation techniques to evaluate the impact of an increase in the statutory retirement age. They are clear that this would impact mainly on the poor who are dependent on state pensions, and would not change the behaviour of the majority of the population.
3 This may be either too large, or too small depending on the time profile of anticipated spending and on labour force participation.